On January 2, 2013, President Obama signed the “American Taxpayer Relief Act of 2012” into law. The Act imposes an income tax increase to 39.6% (from 35%) on U.S. taxpayers earning more than $400,000 ($450,000 for married couples filing jointly) and raises the estate tax rate to a maximum of 40% (from 35%). The federal income tax rate on long-term capital gains has been increased from 15% to 20% for the top income-earners beginning in 2013.
The Act did not implement a far-reaching make-over of the federal income tax laws, or, in the end, tamper very much at all with federal estate taxation. The large threatened bump in tax rates on dividends was not enacted. Many popular tax incentives , including the AMT “patch,” the treatment of mutual fund shares held by non-U.S. persons, and certain beneficial exceptions from “Subpart F” income relating to Controlled Foreign Corporations (CFCs), that were supposed to expire in 2011, were extended through the end of 2013.
Yoram Keinan discuss the details in their recent GT Alert, Fiscal Cliffhanger: Congress Passes Federal Tax & Health Care Legislation for 2013.
Perhaps the most significant feature of the Act is in in what it did NOT do. The Treasury Secretary has given the U.S. Congress official notice to that the current $16.394 trillion debt ceiling has already been reached. The Treasury Department has limited authority to use temporary measures to avoid default, which will postpone default by several months. However, a statutory increase in the debt ceiling will be required in the beginning of 2013 to avoid an unprecedented default by the U.S. federal government. Another issue postponed is the matter of huge defense spending cuts, which were averted for the moment. However, the long-term impact on Israeli companies dealing with the U.S. Department of Defense or government contractors certainly remains uncertain. A new fiscal cliff will fast approach, and with it likely a resumption of negotiations on a broader fiscal plan.