Reducing uncertainty, increasing complexity.
Each April, most Americans file their income tax returns for the previous year. By this time next year, in April 2014, you'll be filing your tax return for 2013--and the rules will be governed by the American Taxpayer Relief Act of 2012, the last minute deal that averted the so-called "fiscal cliff."
The good news is that large portions of this new law are permanent, or at least as permanent as any tax law can be. The major portions of the law won't "sunset," so the nation won't have to relive the uncertainty about tax law that captured headlines in December 2010 and December 2012.
In addition, many taxpayers will not face major changes under the new law. It's true that Social Security payroll taxes will rise for all workers, but that partial "holiday" was a temporary measure in effect during 2011 and 2012 to spur a slow economy. The income and estate tax benefits from earlier in this century largely remain in effect.
The catch? Taxpayers with higher incomes face a variety of higher taxes. Those taxes are imposed at different levels of income and on different types of income: adjusted gross income (AGI), modified adjusted gross income (MAGI), and taxable income. Owners of S corporations and limited liability companies (LLCs) who report business net income on their personal tax returns may be especially vulnerable to the higher rates. Similarly, taxpayers who report much higher income in a given year, perhaps because of a Roth IRA conversion or an asset sale, might have to wrestle with the higher rates and increased complexity of the new law.