American Taxpayer Relief Act Of 2012

AAA

DEFINITION of 'American Taxpayer Relief Act Of 2012'

A U.S. bill signed by President Obama on January 2, 2013, that had numerous provisions affecting Americans' income tax bills. The American Taxpayer Relief Act of 2012 averted the tax aspect of the “fiscal cliff” by preventing many tax breaks from expiring as scheduled. Furthermore, it delayed mandatory congressional spending cuts called “the sequester” until March 2013. It also raised the marginal tax rate for certain high-income households, extended various tax credits, capped the estate tax and patched the alternative minimum tax, among other things.

INVESTOPEDIA EXPLAINS 'American Taxpayer Relief Act Of 2012'


The American Taxpayer Relief Act of 2012 made the Bush tax cuts permanent, which meant that marginal income tax rates remained at 10, 15, 25, 28, 33 and 35 percent for most taxpayers instead of increasing. However, it raised taxes on individuals earning more than $400,000 and families earning more than $450,000 annually by increasing the top marginal income tax rate to 39.6%. It also established a $5 million estate tax exclusion and a 40% maximum estate tax rate instead of a $1 million exclusion and 35% maximum rate.
 
The ATRA capped the tax rates on long-term capital gains and qualified dividends at 15% (with the exception of a 20% rate for the highest income earners). Those in the lowest two tax brackets will continue to pay a 0% rate on these types of income. Other tax benefits that were made permanent include the child tax credit, dependent care tax credit, adoption tax credit and employer-provided child care tax credit. The act also increased the amount taxpayers can contribute to Coverdell education savings accounts.
 
The alternative minimum tax exemption amount was made permanent at $50,600 for individuals and $78,750 for married couples, indexed for inflation. The act also repealed the limits on itemized deductions and the phase-out of the personal exemption for individual taxpayers with adjusted gross incomes of $250,000 or less and married couples with AGIs of $300,000 or less. Federal unemployment benefits were extended for one year, and the standard deduction for a married couple filing jointly was permanently made twice the standard deduction for a single individual, relieving the marriage penalty.
RELATED TERMS
  1. Sequestration

    A term adopted by Congress to describe a fiscal policy process ...
  2. Boehner Bill

    A bill tabled by Speaker of the House John Boehner that aimed ...
  3. Fiscal Cliff

    A combination of expiring tax cuts and across-the-board government ...
  4. Bush Tax Cuts

    A series of temporary income tax relief measures enacted by President ...
  5. Capital Gains Tax

    A type of tax levied on capital gains incurred by individuals ...
  6. Qualified Dividend

    A type of dividend to which capital gains tax rates are applied. ...
Related Articles
  1. Taxes

    Before You Visit Your Tax Preparer: Do This

    The earlier you start preparing your tax records and documents, the more likely you are to have a smooth tax return experience – and all the tax benefits you're due.
  2. Taxes

    How To File Your Child's First Income Tax Return

    Use this quick parental guide to help your child learn the tax filing process and establish good habits.
  3. Taxes

    Tax Forms Every Investor Must Understand

    Recent legislation has added a few new items to the list of tax forms that taxpayers must use to report their investment income. Know which forms you will need to file your taxes this year.
  4. Investing Basics

    Investment Tax Basics For All Investors

    Nothing can be said to be certain, except death and taxes even in your investments.
  5. Taxes

    Tax Treatment Of Ineligible IRA Rollovers

    Eager to save for retirement? Learn how to avoid overpayment penalties.
  6. Taxes

    Form 9465: Don't Pay Your Back Taxes Without It

    This form can lighten your tax load if you owe Uncle Sam.
  7. Taxes

    4 Ways To Minimize Estate Taxes

    These four strategies will ensure that most of your money goes to your loved ones, and not to the government.
  8. Taxes

    Why You Should Itemize Your Tax Deductions

    This strategy of moving your tax deductable payments and donations to the following year could mean hundreds more on your return.
  9. Taxes

    Making Sense Of The Tax Code

    If tax rules and regulations are Greek to you, read on to learn how to decipher them.
  10. Retirement

    Cut Your Tax Bill

    Paying your bills early or giving an extra donation now can help you come tax time.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center