Vice-President Biden and Senate Minority Leader McConnell have negotiated an agreement on a “fiscal cliff” tax bill, and the bill has passed the Senate this morning by a 89-8 vote. The Senate bill is strictly a tax bill – the Biden-McConnell pact agreed to defer the spending cut discussion necessary to address debt ceiling issues for two months.
The highlights of the bill:
- A top rate of 39.6% will kick in for married couples with taxable income of $450,000 and higher (the bracket would begin at $400,000 for single filers, and $225,000 for married filing separate filers).
- A top rate of 20% will apply to capital gains and qualified dividends for the same $450,000 (MFJ) / $400,000 (Single) / $225,000 (MFS) brackets.
- The personal exemption phaseout and itemized deduction haircut returns. Thresholds are $300,000 for married couples and $250,000 for individuals.
- The AMT patch for 2012 has been included and – FINALLY – the AMT exemption amount has been permanently indexed for inflation starting in 2013.
- The estate tax rate has been fixed at 40%, with $5,120,000 estate exemption amount. The exemption is indexed for inflation.
- Various expired provisions have been extended (some retroactively) through the end of 2013.
The bill does not include an extension of the 2-percentage-point reduction in employee FICA taxes, so employee FICA withholding reverts back to 6.2% (7.65%, when coupled with Medicare withholding) effective today.
The bill seemingly still has an uphill battle for passage in the House of Representatives, which may take up the bill as early as today. The House killed a bill in December which would have imposed the 39.6% rate at the $1,000,000 level.