New Tax Laws To Watch Out For In 2013
With a new year come new laws, and in 2013 the U.S. government has already implemented several changes to the tax code. Citizens may need to budget their hard-earned dollars wisely, as their paychecks may be a little lighter come payday. Failure to educate yourself and prepare could have serious implications for your financial outlook. Here is a look at some of the new tax laws to watch out for in 2013.
High-Income Households Can Expect to Pay More
Single U.S. citizens who make more than $400,000 and married couples who earn more than $450,000 will find themselves in a higher tax bracket. Previously, individuals with annual taxable income over these financial thresholds were subject to a 35% income tax, but in 2013, these individuals will now face a tax rate of 39.6%, a 4.6% increase.
Another tax change that will affect high-income households is the increase in capital gains tax rates. In 2013, the tax rate on capital gains and dividends has increased to 20% for all U.S. taxpayers in the highest tax bracket. Taxpayers in lower brackets will not be affected.
Estate taxes are also increasing in 2013. Any estates worth more than $5 million dollars will now face a 40% tax rate, a 5% increase from last year's 35% rate.
Payroll Tax Changes
Payroll tax changes are a hot topic in 2013 as well. The 2% Social Security tax reduction that was in place in 2011 and 2012 as a temporary stimulus to help citizens through hard economic times did not carry over into 2013. As a result, income earners will be taxed at 6.2% instead of at the 4.2% rate seen in 2011 and 2012. While a 2% increase doesn't sound like much, it will affect the amount of money Americans bring home from work. The lower and middle classes will be especially affected. An American with a $30,000 annual salary
can now expect to pay over $1,800 in Social Security taxes.
Affordable Care Act Surcharge
Another huge change coming down the pike is related to the Affordable Care Act. In 2013, you could face a 3.8% Affordable Care Act surcharge on unearned income from rent, royalties, interest, dividends and some capital gains. This tax applies to individuals who make more than $200,000 per year and to married couples filing jointly who make more than $250,000. This new tax will largely affect higher-income families and not the lower or middle classes because of the income threshold.
Tax Changes for Social Security and Medicare
A big change that has a lot of media outlets talking is the wage ceiling raise for Social Security and Medicare. The taxable wage ceiling for Social Security has increased to $113,700 in 2013. There is no wage ceiling for Medicare, and you will be taxed no matter what your income is. However, if you make more than $200,000, an additional 0.9% tax will be assessed.
Earned Income Tax Credit Increased for Spouses Filing Jointly with Three or More Qualifying Dependents
A definite positive for taxpayers in lower- to middle-income households is the news that the Earned Income Tax Credit has been increased in 2013 from $5,891 to $6,044 for spouses who file jointly and who have three or more qualifying dependents. The Earned Income Tax Credit is designed to allow families to get ahead of their finances, and in 2013, eligible families will certainly reap the benefits.
The Bottom Line
Two-thousand thirteen brings with it a great deal of changes to the tax code, and taxpayers need to be on their toes. Many Americans have already felt the increase in taxes when they received their paychecks in January. While many of the changes appear to affect only high-income households, Americans as a whole will be impacted by the changes.Source: www.investopedia.com