Central Oregonian

The fiscal cliff and taxpayer relief

What does the American Taxpayer Relief Act mean to you and what tax breaks should you be looking for?

Ramona McCallister

February 18, 2013

At the eleventh hour, Jan. 1, 2013, the U.S. Senate and the House of Representatives passed the American Taxpayer Relief Act of 2012, averting the so-called “Fiscal Cliff.”

With a vote of 89 to 8 by the Senate and a vote of 257 to 167 by The House, the legislation adversely affected taxpayers with incomes of more than $400,000, and extended most tax credits for the majority of taxpayers, such as the American Opportunity Credit, the Child Tax Credit, and the Earned Income Credit.

According to the 2010 United States Census, Prineville had a median household income from 2007 to 2011 of $37,034, with almost 20 percent of the population below the poverty level. Although the figures were not available for households making more than $400,000, it would appear to be a minimal amount of the population.

Without the American Taxpayer Relief Act, individual tax rates on all income groups would have increased, taxpayer-friendly treatment of capital gains and dividends would have completely disappeared, and the child tax credit would have been reduced to $500. In addition, enhancements to education tax incentives would have ended, and the federal estate tax would have reverted to a maximum rate of 55 percent.

“Basically what happened with the law that was passed Jan. 1, (2013) was most of the tax breaks that we had previously for most taxpayers were extended or renewed permanently,” said Mike Mohan, Certified Public Accountant in Prineville.

Some of the biggest impacts to taxpayers overall include the Child Tax Credit of $1,000 per child, the Earned Income Credit, The American Opportunity Credit, Child and Dependent Care Credit, and Employer-Provided Child Care Credit.

Mohan said that one of the big impacts on higher-income taxpayers was the fix for alternative minimum tax, which was made permanent with an inflation adjustment.

“It was enacted in 1969, and never had an inflation adjustment,” he added.

Mohan also indicated that the American Opportunity Credit is one of the biggest credits to be extended, as well as Energy Tax credits and marriage penalty relief.

Although not the case for married couples with incomes of more than $150,000, the marriage penalty relief means that the standard deduction for married couples would now be 200 percent rather than 167 percent of the deduction for single individuals. Without the marriage penalty relief, the difference for joint filers in 2013 would have meant a drop of $1,950 (from $12,200 to $10,150).

However, individuals with incomes above the $450,000 for married and $400,000 for singles, threshold will pay more in taxes in 2013, because of a higher 39.6 percent income tax rate and a 20 percent maximum capital gains tax. Because the 2012 payroll tax holiday was not extended, all taxpayers will see a 2 percent increase in deductions for their Social Security taxes.

While referring to the American Taxpayer Relief Act of 2012, Randall Higbe, a Certified Public Accountant for Evans and Bartlett, CPAs, LLP, commented that earlier in February, homeowners who were required to amortize points for 2012 re-financing would have their return delayed by the IRS until the end of February. That delay was lifted on Feb. 10, and that is no longer the case.

Other delays in filing include tax returns that include the American Opportunity Tax Credit, which will also delay the returns for processing until the end of February.

“For the American Opportunity (Credit) you have to be at least a half-time student,” added Higbe.

He also noted that with the American Opportunity Tax Credit, 40 percent can be refunded to the taxpayer, even if they have no tax liability. This tax credit is extended through 2017, and rewards qualified taxpayers with a credit of 100 percent of the first $2,000 of qualified tuition and related expenses and 25 percent of the next $2,000, for a total maximum credit of $2,500 per eligible student. This credit also applies to the first four years of the student’s post-secondary education.

Other student-related credits include the Lifetime Learning Credit and the $2,500 above-the-line student loan interest.

Mohan said that the IRS has indicated that their refund cycle turnaround for refunds will be about the same as last year. Because of fraudulent claims made last year, returns will be scrutinized more closely, delaying some filing dates, however.

Certified public accountants in Prineville:

Evans and Bartlett, CPAs, LLP, 541-447-6565

Michael J. Mohan, CPA, 541-447-3299

Jay Porter, CAP, PC , 541-447-4822

Werner Accountancy, PC, 541-447-7776