Income Taxes: Prior to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the rate brackets were 15, 28, 31, 36, and 39.6 percent. The 2001 Act created a new 10-percent regular income tax bracket for a portion of taxable income that was previously taxed at 15 percent. The EGTRRA also reduced the tax rates in excess of 15 percent to 25, 28, 33, and 35 percent, respectively.
Effective January 1, 2013, the rates and brackets will be configured something like the following with a new 39.6 bracket for incomes over $400,000 for individuals. The lower brackets are adjusted for inflation and the top bracket fixed by the new law (in later years it is indexed as well). Since the income levels are adjusted for inflation, the exact numbers are not yet available so consider these estimates only. The IRS will be releasing official brackets soon.
|For an individual, if taxable income is:||Then income tax equals:|
|Not over $8,900:||10% of the taxable income|
|Over $8,900 but not over $36,150:||$890 plus 15% of the excess over $8,900|
|Over $36,150 but not over $87,550:||$4,978 plus 25% of the excess over $36,150|
|Over $87,550 but not over $182,600:||$17,828 plus 28% of the excess over $87,550|
|Over $182,600 but not over $397,000:||$44,442 plus 33% of the excess over $182,600|
|Over $397,000 but not over $400,000:||$115,194 plus 35% of the excess over|
|Over $400,000:||$116,244 plus 39.6 of the excess over $400,000|
There is a phase out of itemized deductions based on hitting a certain income threshold.
PEP deduction caps: The Personal Exemption Phase-out will be reinstated with a starting threshold for those making $250,000.
PEASE deduction caps: The "Pease" caps on itemized deductions will be reinstated for those making $300,000 or more.
Previously, both these deduction caps were suspended.
Alternative Minimum Tax: A permanent patch has been set to keep more Americans from being subject to the increased tax level. This would have affected an estimated 30 million taxpayers next year. A creation of the 60's, the alternative minimum tax (AMT) was designed to make sure the wealthy paid taxes. The AMT applied if taxpayers had income over certain levels. The income levels were not inflation indexed. Over the years, Congress applied "patches" to the income levels, adjusting them for inflation. The last patch actually expired at the end of 2011. As a result, the lower income levels were scheduled to apply to 2012 income.
The new law applies a permanent patch with inflation indexing.
The levels that apply to 2012 income are $78,750 for married couples filing jointly and $50,600 for individuals.
Estate tax: The temporary estate tax provisions enacted in 2010, except for the top rate, have been made permanent. The exemption is $5 million inflation adjusted (It was $5.12 million for 2012). Spousal portability of the exemption (unused exemption of a deceased spouse can be used by the surviving spouse) and other revisions made by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 continue except the top marginal rate is 40 percent.
|Effective January 1, 2013, the tax schedule for the estate tax is:|
|Not over $10,000:||18 percent of such amount.|
|Over $10,000 but not over $20,000:||$1,800, plus 20% of the amount over $10,000.|
|Over $20,000 but not over $40,000:||$3,800, plus 22% of the amount over $20,000.|
|Over $40,000 but not over $60,000:||$8,200 plus 24% of the amount over $40,000.|
|Over $60,000 but not over $80,000:||$13,000, plus 26% of the amount over $60,000.|
|Over $80,000 but not over $100,000:||$18,200, plus 28% of the amount over $80,000.|
|Over $100,000 but not over $150,000:||$23,800, plus 30% of the amount over $100,000.|
|Over $150,000 but not over $250,000:||$38,800, plus 32% of the amount over $150,000.|
|Over $250,000 but not over $500,000:||$70,800, plus 34% of the amount over $250,000.|
|Over $500,000 but not over $750,000:||$155,800, plus 37% of the amount over $500,000.|
|Over $750,000 but not over $1,000,000:||$248,300, plus 39% of the amount over $750,000.|
|Over $1,000,000:||$345,800, plus 40% of the amount over $1,000,000.|
Dividends: Under long time "temporary" law, an individual's qualified dividend income was taxed at the same rates that applied to net capital gains. This treatment applied for purposes of both the regular tax and the alternative minimum tax. Thus, an individual's qualified dividend income was taxed at rates of zero and 15 percent. The zero-percent rate applied to qualified dividend income which otherwise would be taxed at a 10- or 15-percent rate if the special rates did not apply.
Effective January 1, 2013, the dividends rates link to the capital gains rates continues, so for taxable years beginning January 1, 2013, an individual's qualified dividend income is taxed at rates of zero, 15 percent or 20 percent depending on income levels.
Capital Gains: Under long time "temporary" law, the maximum rate of taxation on the adjusted net capital gains of an individual was 15 percent. Any adjusted net capital gains which otherwise would be taxed at a 10- or 15-percent rate was taxed at a zero rate.
For taxable years beginning January 1, 2013, the maximum rate of taxation on the adjusted net capital gains of an individual is 20 percent for individual taxpayers with taxable income over $400,000 ($450,000 for married couples). It remains at 15 percent for incomes below that level except any adjusted net capital gains which otherwise would be taxed at a 10- or 15-percent rate are taxed at a zero rate.
Payroll Taxes: A refresher on terminology is necessary for the first two tax increases for 2013.
Effective January 1, 2013, the OASDI tax rate for employees returns to 6.2 percent (and comparable return in the self-employment tax).
New Taxes: The health care reform law, the Patient Protection and Affordable Care Act (PPACA) included two tax increases that took effect on January 1, 2013.
This story was featured in the Jan. 2013 newsletter