The American Taxpayer Relief Act of 2012 (ATRA) extended many of the tax rate provisions of earlier tax laws that were scheduled to expire in January 2013. However, ATRA did not extend the marginal tax rate in effect for income in the highest tax bracket; this rate increased from 35 percent to 39.6 percent in January 2013. Although BEA’s source data do not include the details needed to separately identify the impact of ATRA, we can describe how the effects of the act are reflected in BEA’s estimates of personal current taxes.
While rates for the highest tax bracket increased in January 2013, changes to the marginal tax rate for high wage and salary earners have a relatively small impact on the total amount of taxes withheld from wages and salaries. For nonwithheld income taxes, however, the impact is expected to be greater.
Nonwithheld income taxes (income taxes not subject to withholding) consist of quarterly payments of estimated taxes, final settlements (tax payments that are made when tax returns are filed), and back taxes, and are net of refunds.
For estimated taxes, BEA’s estimates for January 2013 were impacted, because this estimate is based on projected calendar year 2013 tax liabilities. Estimated tax payments are associated with tax liabilities in the current tax year, but they are paid with a one quarter lag. BEA’s initial estimates of these tax payments are based on the projected amount of taxes that will be collected during each calendar year. These annual estimates are then interpolated across the calendar year in which these taxes are expected to be collected, so the full impact of the ATRA will be seen throughout the year.
For final settlements, back taxes, and refunds, the impact of ATRA did not affect BEA’s estimates for January 2013, because the tax liabilities accrued in 2013 are expected to be paid or collected (in the case of refunds) in 2014. Instead, ATRA provisions will affect BEA’s estimates of final settlements, back taxes, and refunds beginning with January 2014. BEA’s estimates of final settlements, back taxes, and refunds for the month of January are based on the projected amount of taxes that will be collected or refunded throughout the calendar year. These estimates are held constant for all months of the year in which the taxes are expected to be collected or refunded.
In addition to permanently extending the individual tax rates for individuals with incomes below $400,000 and families with incomes below $450,000, ATRA permanently extended both the Alternative Minimum Tax (AMT) “patch” by indexing the income limit for paying the AMT to inflation and the expansion of the Child Dependent Care Tax Credit. The expansions of the Earned Income Tax Credit, Child Tax Credit and American Opportunity Tax Credit were extended through 2017. Many business tax provisions were also extended through 2013, including bonus depreciation. For more information on how tax provisions such as bonus depreciation impact corporate profits, please see the FAQ "How do the economic stimulus acts impact NIPA Corporate Profits?”