Here is a brief outline of the legislation passed by the Senate and House extending certain tax rates, deductions, and credits for individuals.
- Rates. The rate cuts were permanently extended for those earning less than $400,000 individually, or $450,000 for a married couple. This means rates will remain the same for those under the thresholds.
- Payroll taxes are going up. Payroll tax is typically 6.2% for Social Security, it was temporarily reduced by 2% in 2011 and then extended into 2012. This was not extended for 2013. Therefore, as of January 1, 2013 the rate is 6.2%, meaning all individuals will take home a little less each paycheck.
- Education Credits. The American Opportunity Tax Credit and Child Tax Credit have been extended for five more years. Note this is not permanent. Likewise, the deduction for tuition and expenses was extended for 2012 and 2013.
- EITC. The Earned Income Tax Credit has been extended for five more years.
- Teacher Expenses. Elementary and Secondary School teachers may continue to deduct certain expenses through 2013.
- Mortgage Insurance. The bill also extended the deduction for mortgage insurance premiums to allow the deduction for both 2012 and 2013. (Technically this had expired in 2011, but the deduction has been made available for 2012 and 2013.)
- Deduction for Local Taxes. The option between deducting state and local sales tax instead of state and local income taxes was extended for both 2012 and 2013.
- Credits for Energy-Efficiency. The tax credits for purchase of energy-efficient new homes and appliances is extended to cover both 2012 and 2013.