The American Taxpayer Relief Act became law in January, and it revived two old provisions known as “PEP” and “Pease.” Both increase the tax you’ll owe on your 2013 federal return by reducing the value of certain deductions when your adjusted gross income exceeds specified levels.
“PEP” is the acronym for the personal exemption phase-out. As you know, personal exemptions are deducted from income, and you can claim one for yourself, your spouse, and your dependents each year. For 2013, the maximum personal exemption is $3,900 for each eligible member of your household.
Under the newly revived PEP, when you are married and file a joint return and your 2013 AGI is greater than $300,000, your personal exemptions will be reduced. The reduction begins at $275,000 when your filing status is head of household and $250,000 when you’re single.
The other newly revived old rule, “Pease,” (named after the original sponsor of the rule) kicks in at the same income levels. Pease increases your tax by reducing the total amount of itemized deductions you can claim on your federal income tax return.
Give us a call here at Dye and Whitcomb if you think either of these changes will affect you. We can explain the impact on your return and help with your 2013 tax planning.