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Elements of ATRA
The American Taxpayer Relief
Act (ATRA) became law
on January 2, 2013.
ATRA: (1) repealed the
sunset of the Economic Growth
and Tax Relief Reconciliation Act
of 2001 (EGTRRA); (2) increased tax
rate; (3) increased the capital gains
rate; (4) re-introduced the “stealth”
taxes by reduction of itemized deductions
and personal exemptions;
(5) created “permanent” alternative
minimum tax relief; and (6) extended
estate and gift tax exemptions
established in 2010.
ATRA relief retained some of the
Bush-era tax policies and avoided
government spending cuts, although
resolution of the debt ceiling
question has only been deferred.
ATRA was a compromise. The
administration wanted higher tax
rates on incomes of at least $250,000
(citing those successful families and
individuals as “rich”), while Republicans
resisted higher rates. The definition
of rich settled at singles making
over $400,000, and $450,000 for
married joint filers.
Repeal of EGTRRA
Sunset
EGTRRA provided significant tax
breaks from 2001 through 2012, particularly
in the area of capital gain
rates, estate taxes and gift taxes.
EGTRRA was scheduled to sunset
after 2010, meaning that we would
return to higher tax rates in effect
before 2001. Both sides agreed to defer
the EGTRRA sunset at the end of
2010 to December 31, 2012, at which
time the government would face its
self-imposed fiscal cliff.
When the dust settled, both sides
claimed victory when they made
by G. Scott Haislet
EGTRRA permanent under ATRA,
with no possibility of sunset in the
future.
Income Tax Rates
ATRA retained existing 10 percent,
15 percent, 25 percent, 28 percent,
33 percent and 35 percent rates
that prevailed pre-ATRA. Absent
ATRA, these rates would have been
materially higher.
ATRA added a 39.6 percent rate for
income above the applicable threshold
of $400,000 for single taxpayers,
$450,000 for married joint filers and
$425,000 for heads of household.
The applicable threshold will be
adjusted annually for inflation.
The tax brackets on which income
is taxed at 10 percent, 15 percent, 25
percent, 28 percent, 33 percent and
35 percent will be adjusted annually
for inflation. These favorable
policies retain the “bracket creep”
avoidance policy dating from the
1980s.
Capital Gain Rates
ATRA retained the zero percent
and 15 percent long-term capital
gain rates. That means zero percent
capital gain rate will apply to gains
that would otherwise be subject to
10 percent or 15 percent ordinary
rate; 15 percent will apply to gains
that would otherwise be subject to
25 percent, 28 percent, 33 percent or
35 percent ordinary rate.
ATRA imposes a 20 percent longterm
capital gain rate on income
above the applicable threshold (e.g.,
above $450,000 for married joint filers
and $400,000 for singles). That
means that 20 percent capital gain
rate will apply to gains that would
otherwise by subject to the 39.6 percent
ordinary rate.
For example, it will be possible
for a gain to be taxed partially at 15
percent and partially at 20 percent.
Long-term capital gain rates will apply
to gains on sales of capital assets
and on “qualified” dividends. A dividend
is qualified if taxpayer holds
the stock at least 61 days during the
121-day period that begins 60 days
before the stock goes ex-dividend.
Note: a new 3.8 percent tax will
apply to net investment income
(interest, dividends, gains, etc.) for
those with “modified” adjusted gross
income of $200,000, and $250,000 for
married joint filers; that tax began
January 1, 2013, under federal tax
code section 1411, which was adopted
by Congress in 2010. Thus, top
federal long-term capital gain rates
are effectively 23.8 percent.
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MARCH 2013