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
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% |
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 |
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.
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.
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.
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