Daily Tax Update - January 1, 2013: House Considering Amending Senate-Passed Cliff Bill

HOUSE CONSIDERING AMENDING SENATE-PASSED FISCAL CLIFF BILL:  Early this morning, the Senate passed H.R. 8 (the tax provisions negotiated by Vice President Biden and Senate Minority Leader Mitch McConnell) by a vote of 89-8.  The Joint Committee on Taxation estimated it would reduce federal revenue by $3.93 trillion over the next decade compared to current law.  However, House Republicans are concerned over the lack of spending cuts in the bill and are discussing possible ways to amend the bill. If the House changes the Senate bill, it would have to be passed again by the Senate. The House must act by Thursday at noon, when the 112th Congress adjourns.  Since the 113th Congress begins on January 3rd, the Senate would have to re-pass its legislation.

  • The tax provisions in the Senate bill include:
    • “Income Tax Rates:  Maintains current rates on income below $400,000 for singles and $450,000 for couples. Would permanently increase tax rates on income above that to 39.6% from 35%.
    • Dividends and Capital Gains Rates:  Permanently increases tax rates to 20% from 15% for single people with income over $400,000 and couples over $450,000.
    • Exemptions and Deductions:  Reinstates provisions that phase out personal exemptions and deductions for incomes over $250,000 for singles and $300,000 for couples.
    • Alternative Minimum Tax:  Permanently indexes the alternative minimum tax for inflation, preventing millions of taxpayers from being affected.
    • Estate Tax:  Permanently increases tax rates to 40% from 35% on the value of estates over $5 million.
    • Tax Credits:  Extends tax cuts in the 2009 stimulus law for five years, including a child tax credit, an expanded earned income credit and a refundable credit for college tuition. Extends some business tax credits for one year.
    • Payroll Tax Increase:  Allows payroll taxes to rise on Tuesday to 6.2% from 4.2% on workers’ first $113,700 of income.
    • Unemployment Insurance:  Extends expansion of unemployment insurance for a year.”
  • The text of the legislation is attached.
  • The Joint Committee on Taxation released Estimated Revenue Effects Of The Revenue Provisions Contained In An Amendment In The Nature Of A Substitute To H.R. 8, The "American Taxpayer Relief Act Of 2012," As Passed By The Senate On January 1, 2013 (JCX-1-13).  The text of JCX-1-13 is available at https://www.jct.gov/publications.html?func=startdown&id=4497

IRS PROVIDES GUIDANCE ON WITHHOLDING IN 2013:  On December 31, the IRS released new income-tax withholding tables for 2013 and issued special instructions on implementing new income tax and Social Security tax rates. In issuing this guidance, the IRS takes note of the fact that Congress is currently considering legislation that could affect these rates. If this legislation is enacted, the IRS will issue new, corresponding tables at that time. The updated tables issued today show the new rates for 2013, which reflect the expiration of the 2001 and 2003 tax cuts. In addition, employers should also begin withholding Social Security tax at the rate of 6.2% of wages paid following the expiration of the temporary two-percentage-point payroll tax cut in effect for 2011 and 2012. Notice 1036 contains the percentage method income-tax withholding tables and related information that employers need to implement these changes.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE  Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country.  The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court.  The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.