What is The American Tax Relief Act of 2012?

President Barack Obama signed The American Taxpayer Relief Act of 2012 into law on January 2, 2013.

The act included many tax cuts that were introduced between 2001 and 2010 permanent, as well as extended several other forms of tax relief for up to five years.

What Was Included in the American Taxpayer Relief Act of 2012?

The American Taxpayer Relief Act of 2012 (ATRA) was passed with the intent of preventing enacting a collection of fiscal austerity measures that became known as the fiscal cliff on January 1, 2013.

Federal Reserve Chairman Ben Bernanke coined the “fiscal cliff” term in 2012 to describe a package of tax hikes and spending cuts set forth in the Budget Control Act of 2011.

The American Taxpayer Relief Act addresses the taxation side only of the emerging fiscal cliff. A few months later, federal spending came into consideration as part of the sequester process.

When ATRA passed, it prevented most of the major tax cuts enacted between 2001 and 2010 from expiring. ATRA also made tax savings that were apart of the Economic Growth and Tax Relief Reconciliation Act of 2001 as well as the Jobs and Growth Tax Relief Reconciliation Act of 2003 permanent.

ATRA extended tax cuts built into the American Recovery and Reinvestment Act of 2009 through 2017. Along with extending the tax cuts, ATRA also raised payroll taxes for many Americans and reversed cuts for the highest earners that were passed with the George W. Bush administration’s support. At the time of ATRA’s passing, the White House claimed it would reduce the fiscal deficit by $737 billion.

Political Considerations of ATRA

With a fiscal cliff looming as 2012 came to an end, Congress considered three different courses of action.

One, it would take no action and allow spending cuts and tax increases to go into effect. Economists believed doing so would send the nation into another recession, and the political implications for Congress members would have been similarly catastrophic.

Option number two was to pass legislation canceling the entire austerity package. This path would have caused the U.S. debt to skyrocket further and risked the federal government’s credit standing.

Option number three represented the middle ground and was a combination of spending cuts and tax increases that were designed to limit the mounting pressure on the nation’s debt.

Republican Congressmen and women strongly supported tax and spending cuts, and ultimately were persuaded to agree to a number of tax increases. Ultimately, Congress chose the third option and passed ATRA’s tax measures with the intent to address spending cuts through the ensuing sequestration process.

ATRA Tax Provisions

The tax rates for income, dividends, and capital gains stayed at the 2012 levels for individuals with annual taxable income of $400,000 or less ($450,000 for a married couple on a joint tax return), instead of returning to the higher rates when the Bush tax cuts expired.

For individuals with taxable income above the thresholds of $400,000/$450,000:

The top marginal tax rate on income of 39.6% was retained. This rate was provided for under the expiration of the 2001 portion of the Bush tax cuts and increased from the 35% rate in 2003–2012.

The top marginal tax rate on long-term capital gains of 20% was retained. This tax rate was provided for under the expiration of the 2003 portion of the Bush tax cuts. This was a 15% increase from the 2003–2012 rate.

The top marginal tax rate on dividends, which were set to increase to the regular income rate of 39.6% when the 2003 portion of the Bush tax cuts expired, was set to the capital-gains rate of 20% — a 15% increase from the 2003–2012 rate.

The reinstatement of a phase-out of tax deductions and credits for incomes over $250,000 for individuals and $300,000 for couples. These limits on deductions were in place before the Bush tax cuts, before disappearing in 2010. The 2-year-old cut to payroll taxes was not extended.

Some tax credits were extended for five years for low-income families, including ones for college tuition and an expansion of the Earned Income Tax Credit.

The child tax credit is equal to $1,000 per child and is refundable up to 15 % of earnings above $10,000. Another ATRA provision briefly lowered the refundability threshold to $3,000. The child and dependent tax care credit rate starts at 35% on eligible expenses up to $3,000 per child (with a max. of $6,000) and drops down to 20% between adjusted gross incomes of $15,000 and $43,000.

ATRA Spending Provisions

The budget sequestration, which was created by the Budget Control Act of 2011 was delayed by two months. This was intended to give more time for negotiations on deficit reduction.

The $24 billion costs were intended to be offset by a provision that loosened the rules for converting 401(k) accounts into Roth 401(k) plans, requiring taxpayers to pay taxes on the assets.

For 2013 only, certain security funding, including homeland security and international affairs were cut.

Federal unemployment benefits were extended for a year — a cost of $30 billion.

A pay freeze for Congress members was extended, but a general pay freeze for government workers wasn’t extended.

Some portions of the farm bill that expired in September received a nine-month extension. To learn more about the different solutions to resolve tax relief or tax debt, please visit https://irstaxreliefnetwork.com/ Thank You for your time. I hope you learned a lot from this article. Have a good day!