Tax Rates: Singles with taxable income of $400,000, couples with $450,000 and heads of household with $425,000 – rates increase to 39.6% from 35%
Standard Deductions: Couples – $12,200; if one is age 65 or older – $13,400; if both are age 65 or older – $14,600. Singles – $6,100; if age 65 – $7,600. Heads of Household – $8,950 plus $1,500 if age 65. Blind- $1,200 more ($1,500 if unmarried and not a surviving spouse).
Estate taxes have $5,250,000 exemption with increased tax rate to 40%. The annual gift tax exclusion is $14,000 per donee.
Payroll Tax for social security withheld increases 2% up to the wage base limit for 2013 of $113,700. Self-employed individuals will need to increase their estimated tax payments accordingly.
Itemized Deductions Phaseouts for individuals with AGI over $250,000, couples over $300,000 and $275,000 for heads of household will be reduced by 3% of the excess of AGI over the thresholds. The total reduction will not exceed 80% of itemizations. Itemized deductions exempt from this reduction are medical expenses, investment interest, casualty losses and allowed gambling losses.
Personal Exemption increase to $3,900 with phaseout of 2% for each $2,500 of AGI over the same thresholds for itemized deduction phaseout.
AMT permanently indexed for inflation. AMT exemption for 2013 for couples increased to $80,750 and $51,900 for singles and heads of household.
Medicare Surtax of .9% applies to total earnings over $200,000 for singles and heads of household; couples over $250,000; married filing separately over $125,000. Surtax applies to wages and self-employment income. Employers do not owe the additional surtax on the employer portion of medicare tax.
Medicare Surtax on net investment income of 3.8% for singles and heads of household with MAGI over $200,000; couples over $250,000; married filing separately over $125,000. (MAGI – Modified Adjusted Gross Income is adjusted gross income plus tax free foreign earned income.) This tax is owed on the smaller of the net investment income or the excess of MAGI over the dollar threshold.
Social Security benefits increase 1.7% for a cost of living adjustment (half of the increase paid in 2012).
Social Security Earnings Limits increase: Individuals who turn 66 this year do not lose any benefits if they make $40,080 or less a year before they reach age 66. People at least age 62 but not age 66 by the end of 2013 can make up to $15,120 before they lose social security benefits. No earnings cap for anyone once they turn age 66.
Medical Expense Deductions: The threshold for deducting medical expenses as an itemized deduction increases to 10% of AGI for singles under the age of 65. The same applies to couples filing jointly unless one is age 65 or older; if so, their cap remains at 7.5% of AGI.
Medicare Part B premium increase to $104.90 per month. Part B and D premiums can rise to $297.40/month for seniors with MAGI in 2011 exceeding $170,000 for couples or $85,000 for singles.
Foreign Income Exclusion: US taxpayers working abroad have a larger income exclusion at $97,600.
Tax Breaks Restored for 2013:
Income tax exclusion of up to $2 million of forgiven home mortgage debt
Deduct state and local sales tax in lieu of state income taxes
Deduction for teacher’s class supplies
Private Mortgage Insurance Deduction
Taxpayers age 70 1/2 and older are allowed to directly transfer up to $100,000 tax free from their IRAs to charity. IRA payouts received by IRA owners in December 2012 can qualify for this tax treatment if transmitted to the charity before February 1, 2013. IRA owners can make direct transfers in January 2013 to qualify for 2012 charitable donations.
Standard Mileage Rate Allowance for business miles is 56.5 cents per mile. Medical and job related move mileage increases to 24 cents per mile.
There are many more details included in the changes but this gives you brief highlights of the major changes.
Tax Planning is crucial for all taxpayers to insure your 2013 tax payments through withholding and estimated tax payments are sufficient. Each tax situation is unique to each individual and must be reviewed separately.
- Fiscal Cliff Tax Deal: What Does It Mean for Small Business? (forbes.com)
- House Passes Senate Budget Bill Convincingly: We Have A Tax Deal! (forbes.com)
- TurboTax – What is Adjusted Gross Income (AGI)? (turbotax.intuit.com)
- What the “fiscal cliff” bill means to taxpayers (cbsnews.com)
- As 2013 Begins, Get Ready For An ObamaCare Tax Onslaught (forbes.com)