Federal Tax Law Changes 2013

As we begin the start of the New Year, we want to remind you of some of the changes in both the Federal and State tax laws. These changes in the tax law may have an impact on your tax liability for 2013 and beyond. Because there are so many changes, we want to share some of the more noteworthy changes in effect.

Individual Tax Rates for 2013

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Capitol Gains and Qualified Dividends

Type of Gain	Holding Period	Top Rate for Tax Payer in 39.6% Marginal Tax Bracket	Top Rate for Tax Payer in 25-35% Marginal Tax Bracket	Top Rate for Tax Payer in 10-15% Marginal Tax Bracket
Short Term	12 months or less	Ordinary income tax rate	Ordinary income tax rate	Ordinary income tax rate
Long Term Term	More than 12 months	20%	15%	0%
Qualified Dividends	60 days or more	20%	15%	0%

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Personal Exemption Phase-Out

Personal exemptions are reduced by 2% for each $2,500 in excess of the taxpayer’s AGI over:

Filing Status	Threshold Amount
Married Filing Joint	$300,000
Head of Household	$275,000
Single	$250,000
Married Filing Separate	$150,000

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Itemized Deduction Phase-Out

The disallowed deduction amount is equal to 3% of the excess of the taxpayer’s AGI over:

Filing Status	Threshold Amount
Married Filing Joint	$300,000
Head of Household	$275,000
Single	$250,000
Married Filing Separate	$150,000

The reduction cannot exceed 80% of your Itemized Deductions. Medical expenses, investment interest, casualty and theft losses, and gambling losses are not reduced by the limitation.

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Net Investment Income Tax (3.8%)

This is a new tax for 2013 that came as a result of Health Care Reform. The tax rate of 3.8% applies to certain net investment income of individuals, estates and trusts that have modified AGI above the following statutory threshold amounts:

Filing Status	Threshold Amount
Married Filing Joint	$300,000
Head of Household	$275,000
Single	$250,000
Married Filing Separate	$150,000
Qualifying Widow(er) with a Dependent Child	$250,000

Investment income includes: Income from interest, dividends, annuities, royalties, rents (other than those derived from a trade or business), capital gains (other than those derived from a trade or business), trade or business income that is a passive activity with respect to the taxpayer, and trade or business income with respect to the trading of financial instruments or commodities. For surtax purposes, modified adjusted gross income doesn’t include excluded items such as interest on tax-exempt bonds, veterans’ benefits, and excluded gains from the sale of a qualified principal residence.

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Additional Medicare Tax (0.9%)

This is new tax for 2013 that is a result of the Affordable Care Act. The tax applies at a rate of
0.9% on wages, compensation, and self-employment income exceeding the following statutory threshold amounts:

Filing Status	Threshold Amount
Married Filing Joint	$250,000
Head of Household	$200,000
Single	$200,000
Married Filing Separate	$125,000
Qualifying Widow(er) with a Dependent Child	$200,000

Wages and compensation exempt from the Medicare tax are not subject to the Additional .9% Medicare Tax.