Key Provisions of "Fiscal Cliff" Legislation Affecting SEMA Members

After weeks of negotiations, Congress passed legislation to avoid a series of expiring tax credits and government spending cuts known as the “fiscal cliff.” The “American Taxpayer Relief Act” prevented automatic tax increases and included several provisions of interest to small-business owners. Many of the provisions included in the compromise are permanent, providing certainty for job creators and SEMA-member companies. However, the law includes a 2% increase in the social security payroll tax for employees (4.2% to 6.2%), eliminating an existing tax break for workers. In addition, Congress delayed action on a number of substantial budget cuts that would have had an immediate impact on several government programs, including defense appropriations.

To follow is a summary of key provisions of the law signed by President Obama on January 1:

• The end of 2011 and 2012 temporary payroll tax cuts, resulting in a 2% tax increase for workers.
• Makes permanent tax rates for individuals making $400,000 or less per year. 
• Increases tax rate for individuals making $400,000 or more (married couples making $450,000 or more) from 35% to 39.5%.
• Capital gains taxes remain at 15% for income below $400,000 ($450,000 for married couples). The maximum rate for individuals with income over the limit is 20%.
• Dividend tax rates will remain the same, taxed at the long-term capital gains rate (15%) for taxpayers below the $400,000/$450,000 level. Those above will be taxed at 20%.
• Makes permanent a 40% estate tax rate with a $5 million exemption level (increase from 35%, exemption level remains the same)
• Returns Section 179 expensing deductions to $500,000 for equipment purchased in 2012 and 2013. This is a retroactive increase for 2012 as the deduction amount was $139,000. 
• 50% bonus depreciation extended through 2013.
• Two-year retroactive extension of the Research and Development (R&D) Tax Credit, which expired on December 31, 2011. (January 1, 2012–December 31, 2013)

Although this compromise prevented serious negative economic consequences, SEMA will continue to advocate for meaningful tax reform designed to spur economic growth, including a permanent R&D tax credit. For more information, contact Dan Sadowski at dans@sema.org.