"I PASSED!! Thanks Joe and pass my thanks along to everyone else at the school."
- Chris McFadden
Tax Update for 2012
Fortunately this year is not like the last. In mid-December 2010 Congress passed a new set of tax laws, which extended the Bush Tax cuts for two additional years—through 2012. They also snuck in a payroll tax cut for 2011 only. Talk about waiting till the last minute.
The downside with this year is the debate about extending the payroll tax cut for 2012. Congress finally figured out what it wanted to do, sort of, and passed a 2-month extension to the payroll tax cut. Therefore, the Old Age, Survivor, and Disability Insurance (OASDI) payroll tax for employees continues to be 4.2% for January and February. The employer piece is still 6.2% so the total rate is 10.4% for self-employed individuals. The Medicare rate stays the same at 1.45% for the employee and employer or 2.9% for self-employed individuals.
Since this is a partial year extension Congress did not want the high-income individuals to shift income or recognize more than the annualized OASDI threshold ($110,100 for 2012) in the first two months. Therefore, any individual recognizing more than $18,350 during the first two months of 2012 will recognize a 2% surtax when filing their income tax return by April 2013. This provision may be adjusted if Congress decides to extend the payroll tax cut for the entire year.
Other changes are primarily due to inflation adjustments. Qualified retirement savings plans allow for deferrals up to $17,000 with a $5,500 catch-up contribution. Total contributions are now $50,000 with the $5,500 catch-up contribution. IRA contributions remain the same at $5,000 with a $1,000 catch-up.
From a tax return perspective, personal and dependency exemptions increased to $3,800, standard deductions are up $300 for married couples filing jointly or $150 for single individuals, investment taxes stayed the same, education credits stayed the same but the lifetime learning credit phase-out was increased $2,000 for married couples and $1,000 for single individuals, and the gift and estate exclusion amount increased $120,000 to $5,120,000 per person and is still portable through the end of the year.
This will be an exciting year here at Dalton Education. Join us!
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