The American Opportunity Credit was extended for another five years as part of the fiscal cliff deal. This is great news for students.
The American Opportunity Credit offers both a non-refundable and refundable credit for tuition and books for college courses prior to a bachelor’s degree or the first four years of college.
The Child Tax Credit and Earned Income Credit were also extended for five years. This allows taxpayers to take a credit of $1,000 for each child younger than age 17. The Earned Income Credit is available for taxpayers with income under:
• $45,060 ($50,270 married filing jointly) with three or more qualifying children;
• $41,952 ($47,162 married filing jointly) with two qualifying children;
• $36,920 ($42,130 married filing jointly) with one qualifying child;
• $13,980 ($19,190 married filing jointly) with no qualifying children;
The credit amounts for 2012 are up to:
• $5,891 with three or more qualifying children;
• $5,236 with two qualifying children;
• $3,169 with one qualifying child;
• $475 with no qualifying children;
The Earned Income Credit is based on the amount of income earned. It is a sliding or curving scale.
The above table does not mean this is the amount you receive, but rather, this is the maximum you can receive. For example, for a married filing joint taxpayer who earns $17,000 and has three children, the amount this taxpayer would receive is $5,891.
However, if the same taxpayer earns $40,000 with three children, the amount to expect will be approximately $1,096. The maximum credit begins at about $12,800 and begins to phase out (lowers) at around $21,800 until it stops at $45,060.
A permanent and retro-active patch for the Alternative Minimum Tax was agreed upon as part of the deal. This will save those taxpayers who get hit with AMT and earn more than $300,000 for couples or $250,000 for a single.
Businesses have an additional year to take advantage of the 50 percent bonus depreciation for purchases for equipment.
Now let’s look at the other news.
The deal restored the 39.6 percent tax rate for high-income households over $400,000 for single taxpayers and $450,000 for married couples. In addition, the capital gains tax rate increased to 20 percent (up from 15 percent). There will be a 3.8 percent surcharge from the Affordable Care Act, which makes dividends and capital gains taxed at a total of 23.8 percent.
These tax rates also apply to high-income earners. The top capital gains rate will stay at 15 percent for lower-income taxpayers.
Social Security tax withholdings increases back to the 6.2 percent; this will be reflected on paychecks beginning in January.
Estate taxes raise from 35 percent to 40 percent with an exemption of $5 million for each person.
For more information, visit the IRS website at www.irs.gov.
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at email@example.com.