Texans can expect to see their taxes going up after Congress passed a new set of legislation that will help the country avoid the so-called fiscal cliff. Immediately following the election, it seemed that all anyone could talk about was the fiscal cliff, and for good reason -- it would have affected nearly everyone in Texas and across the country. While this new legislation will prevent us from jumping over the cliff, it will come with specific changes to the federal tax law.
One of the most important changes for middle class Texans is that Congress permanently dealt with the Alternative Minimum Tax. This tax acted as an absolute minimum that the wealthy would have to pay in taxes, but the income threshold that determined who had to pay it did not take inflation into account. This means that Congress had to pass laws each year that moved the threshold higher, so as to prevent someone in the middle class from paying the tax. The new deal will permanently peg the Alternative Minimum Tax to inflation.
Another change will affect estate taxes. For the very wealthy, the estate tax has always been problematic, as it has prevented them from transferring the total worth of their estates to their beneficiaries. If someone died with an estate worth more than $5 million, the estate was taxed at 35 percent. Now, it will be taxed at 40 percent.
The biggest change, however, will be in income taxes. The good news, however, is that those who earn less than $400,000 a year will pay the same tax rate they have always paid. Anyone above that income threshold will be facing a higher tax rate than they may be used to paying: 39.6 percent. The higher rate is because Congress has allowed tax cuts passed during the Bush administration to expire.
Source: Businessweek, "The Fiscal-Cliff Deal and Taxes: We'll All Pay More," Karen Weise, Jan. 2, 2012
Understanding the complexity of the federal tax law changes accompanying the fiscal-cliff deal is difficult, as are any changes to income or property taxes. Learn more about how we have helped individuals with tax questions by visiting our website.