<p>personal exemptions: the personal exemption phaseout (PEP) reduces the value of each personal exemption from its full value by 2 percent for each $2,500 or part thereof above specified income thresholds that depend on filing status.</p>
<p>The exemption for 2012 is $3800, so for a family of 4 that’s $15200. 2% of that is $304, which in the 33% bracket leads to an effective 4.0% percentage point boost in your marginal rate - that is, if you were in the 33% bracket, during the phaseout your marginal rate would be around 37%.</p>
<p>itemized deductions: cuts itemized deductions by 3 percent of adjusted gross income above specified thresholds but not by more than 80 percent. </p>
<p>This leads to a 3% boost in your marginal rate during the phaseout, so for example if you were at 35% your marginal rate would then be 36.05%.</p>
<p>ETA: That’s how it worked under the old rules, at least.</p>
<p>Sewhappy, check out the calculator at taxfoundation.org. You can put your numbers in, they updated it today. This is a welcome surprise for us, I had guessed at the amount and thought it was far worse. I hope this calculator is accurate.</p>
<p>Here is what I noted. That even though they changed our personal exemption to zero, lowered our itemized allowed deductions and gave us a higher tax rate on some income (I’m assuming that), they changed the AMT required to be paid from $8151 to $590. I hope that’s not an error, we haven’t paid that low AMT forever. So in the end, the federal taxes are showing exactly the same as before the compromise deal, and the only thing that went up is payroll tax liability.</p>
<p>I hope they updated this accurately, because I’d already started rounding up Christmas presents to go back to the store, cancelled a fee based credit card, turned the heat down, and went without my cup of Americano this morning! Which I probably should be doing anyways.</p>
<p>The news reports I’ve seen list the thresholds for higher tax rates at $400K/$450K for single/couples.</p>
<p>I haven’t seen anything definitive about the thresholds for the PEP and itemized deduction phaseouts, but hopefully they will start at $400K/$450K as well.</p>
<p>ETA: busdriver, that link is great! According to it, the threshold is $250K/$300K for the phaseouts for single/married.</p>
<p>And the AMT exclusion was raised to $78,750, which is 5.7% higher than last year, so that is good too.</p>
<p>Busdriver thanks for that link. Really interesting you’re seeing your AMT shrink – wouldn’t that be nice?!</p>
<p>I have read in wsj and the New Jersey star ledger today that income threshold for PEAS is 250k for a couple. Obamacare payroll tax also kicks in at that level</p>
<p>If you pay the amt, you never received all the Bush tax cuts so the elimination of some of the Bush tax cuts is going to affect you less than those that did not pay amt.</p>
<p>Yes, that would be nice, sewhappy. Good to see that they raised the AMT exclusion, so maybe it is credible. I’m feeling so flush with cash now, I’m going to go get that Americano.</p>
<p>What I love is all the screaming that letting the Bush tax cuts expire would hurt the middle class when for years the mantra was that the Bush tax cuts only helped the rich.</p>
<p>With this new deal the politicians changed the definition of the rich and middle class ($250K to $450K), so the screaming makes sense … at least to them.</p>
<p>^ Well, yes, it’s all semantics and theater. And, sadly, the tax hikes they just passed are almost certainly not going to move the needle on the deficit – but my Harvard economics graduate son tells me the deficit doesn’t really mean anything. :)</p>
<p>“Or do you want to complain that because you were paying the amt, you never got all the Bush tax cuts?”</p>
<p>Oh no, I don’t. I was always aware that the “Bush-tax-cuts-for-the-rich” were very much what allowed many people to avoid paying all federal tax or very low federal tax, and did not help me so much. Think of all the screaming that would go on if they’d expired (and not by the rich).</p>
<p>My soon to graduate Carnegie Mellon son agrees with sewhappy’s son. He says it only starts to matter when inflation and interest rates start going up.</p>
<p>Should I be questioning what they are teaching these kids, or are they actually correct?</p>
<p>^^Probably. He is far smarter than I am, kind of a freak of nature.</p>
<p>Perhaps it has something to do with if interest and inflation rise massively, our payments on the debt will increase, and become too overwhelming to handle.</p>
<p>But if the deficit grows exponentially would not the result be higher interest and/or inflation? And if this is the case, then would not it be important to reduce deficit? So, in the end the deficit does matter even if it is manageable now.</p>