New Tax Codes Will Affect Your Taxes in 2013
Most people breathed a sigh of relief when the fiscal cliff was averted. Most people assumed that only the top 2% of income earners would see their taxes go up. However, there have been several changes in the tax laws and almost every taxpayer will be affected by one or more of these changes. Some of these changes will show up on this year’s tax return and some of them will not affect your tax return until 2014. Here are the changes that take place in 2013:
The Change Of The Upper Tax Bracket
A single person making $400,000, a head of household making $425,000, or a couple making $450,000 will now be taxed at a higher rate. Their tax bracket will jump from 35% to 39.6%. The one change that most people have not seen is that a married person filing separately will see the tax jump if they make only $225,000 per year or more. All the people in this tax bracket will also see the capital gains tax rise from 15% to 20%. The exemption for estate tax also increased. Instead of being exempt on the first $5,000,000, it was raised to $5,120,000.
Itemized Deductions Will Be Decreased
Itemized deductions will be phased out for people that fall in certain tax brackets. If you earn $300,000 and filing married jointly, $275,000 and filing head of household, or $250,000 and filing single, you will find big changes in itemized deductions. You will not be allowed to use all of your itemized deductions and your personal exemptions will be reduced this year.
Payroll Tax Will Rise
Most people thought that if they made less than $400,000 per year, they would escape increases in taxes. Taxpayers had enjoyed a social security tax rate of only 4.2%, but that all changed in 2013. The Payroll Tax Holiday was allowed to expire and the tax rate increased to 6.2%. Employees saw a reduction in their net pay immediately in 2013. The new wage base limit for social security increases to $113,700. The Medicare tax rate will remain unchanged from 2012 at 1.45%.
An Increase In The Standard Deduction
The standard deduction will increase for married couples by $300 to $12,000. The increase for single individuals will go up $150 to $6,100. The increase for Head Of Household will rise $250 from $8,700 to $8,950. These match the increase in the standard deductions in 2012. These are the deductions that you enter on line 40 of 1040 form.
An Increase In Dependent Exemptions
The dependent exemption rose in 2013 from $3700 to $3800 per each exemption. Increases such as this one and the standard deduction are raised in conjunction with inflation. The rise will be reflected on the new tax return.