Newsletter – November 2013
As we get towards the end of the year it is a good idea to get an overview of new tax laws that are to take affect for the tax year 2013. There were many new laws that were put into law effective January 1, 2013. There were some major changes to the tax code as well as some minor revisions. What will be discussed here will be some of the more significant changes that could have an effect on many taxpayers.
Tax Rate Changes
Effective January 1st, 2013 there was an increase in tax rates for some taxpayers. For 2013 there is a new higher tax rate of 39.6% for taxpayers making over $400,000. For single tax filers the tax rates will be as follows:
- 10% on taxable income from $0 to $8,925, plus
- 15% on taxable income over $8,925 to $36,250, plus
- 25% on taxable income over $36,250 to $87,850, plus
- 28% on taxable income over $87,850 to $183,250, plus
- 33% on taxable income over $183,250 to $398,350, plus
- 35% on taxable income over $398,350 to $400,000, plus
- 39.6% on taxable income over $400,000
For taxpayer’s filing married filing joint the tax rates will be as follows:
- 10% on taxable income from $0 to $17,850, plus
- 15% on taxable income over $17,850 to $72,500, plus
- 25% on taxable income over $72,500 to $146,400, plus
- 28% on taxable income over $146,400 to $223,050, plus
- 33% on taxable income over $223,050 to $398,350, plus
- 35% on taxable income over $398,350 to $450,000, plus
- 39.6% on taxable income over $450,000
For taxpayer’s filing head of household the tax rates will be as follows:
- 10% on taxable income from $0 to $12,750, plus
- 15% on taxable income over $12,750 to $48,600, plus
- 25% on taxable income over $48,600 to $125,450, plus
- 28% on taxable income over $125,450 to $203,150, plus
- 33% on taxable income over $203,150 to $398,350, plus
- 35% on taxable income over $398,350 to $425,000, plus
- 39.6% on taxable income over $425,000
Medicare Surcharge Tax
Effective January 1st, 2013 a new type of tax takes effect. This tax is called the Medicare Surcharge Tax or also known as the Investment Tax. This tax is assessed on single taxpayer’s making over $200,000 a year in which they must have investment income. For married filing joint the threshold is $250,000. The tax rate is 3.8% and the tax is calculated by multiplying 3.8% against the investment income of the taxpayer and also multiplying 3.8% against the amount of adjusted gross income that exceeds $200,000 ($250,000 for married filing joint). The lesser of these two calculations will be the amount of tax assessed.
Medicare Tax
There is also another tax increase that took effect on January 1st and that is an increase in the medicare tax. This is a withholding tax that most taxpayer’s are subject to. Prior to 2013 the medicare tax rate was 2.9%. For 2013 the medicare tax rate will increase .9% for single taxpayer’s whose gross wages exceed $200,000 and for married filing joint taxpayer’s whose gross wages exceed $250,000.
Payroll Tax Holiday Eliminated
As of January 1st, 2013 the social security withholding tax increased 2% from 4.2% to 6.2%. For 2011 and 2012 the tax had been reduced by 2%. Now the tax will increase to the rate it has been for the past forty plus years.
New Phase Out for Itemized Deductions
Itemized deductions will be phased out for taxpayers once their incomes exceed certain thresholds. For taxpayers with a filing status of married filing joint whose adjusted gross income exceeds $300,000 their itemized deductions will be phased out by 3% of the amount of income that exceed adjusted gross income. For single taxpayers the threshold is $250,000 and for head of household the threshold is $275,000. The following deductions are not subject to the phase out: Medical and Dental expenses, Investment Interest expense, Casualty and Theft Losses, and Gambling Losses.
New Phase Out for Personal Exemptions
Personal exemption deductions will also be phased out for taxpayers once their incomes exceed certain thresholds. The personal exemption deduction is scheduled to be $3,900.This deduction will be phased out by 2% for each $2,500 that exceeds the following AGI thresholds: Married Filing Jointly – $300,000, Head of Household – $275,000, and Single – $250,000