In passing the American Taxpayer Relief Act of 2012 and averting the dreaded "fiscal cliff," Congress ensured that workers will pay more in payroll taxes and that some folks will pay more income taxes.
The good news is that many of the new tax rules are permanent, which will give individuals and business owners a welcome sense of stability. Also, these changes were better than the higher income taxes that would have burdened just about all taxpayers had the tax cuts been allowed to simply expire without further action.
Here is a summary of the new tax rules that have been made permanent by the new law:
Tax rates on ordinary taxable income. For workers with taxable income below certain levels, their tax rates will remain at 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent. For single filers with taxable income above $400,000, married filers with income over $450,000, married filing separately over $225,000 and heads of household with taxable income over $425,000, the new 39.6 percent rate will replace the 35 percent tax rate for income over these amounts. So a married couple with a taxable income of $650,000 will pay an additional $9,200 of income tax just due to this change.
Higher tax rates for long-term capital gains and dividend income. Like the income tax rates for people with incomes below certain levels, the tax rates that apply to their capital gains and dividends will remain the same. But for taxpayers with the higher incomes noted above, their rate increases from 15 percent to 20 percent. So a taxpayer with $10,000 in capital gains and $10,000 in dividend income would pay an additional $1,000 of income tax due to this change. Read more....