With the Bush Era tax rates expiring at the end of 2012, Congress passed the American Taxpayer Relief Act of 2012. What exactly does this act mean to the taxpayer? Will you see tax increases this year? If so, how much and for whom?

Here is a rundown of the changes that you will see in 2013 payroll and income taxes. Please note that income in headlines are quoted for individual earners, you will find married, and head of household, amounts in the summary.

For All Income Earners

Regardless of how much you earn, whether it be $6000 per year or $600,000 per year, income earners across the board will see a paycheck that is 2% less than the previous year as the payroll tax holiday was allowed to expire. This means the full 6.2% of Social Security will now be withheld from your pay as opposed to the previous 4.2%. The tax holiday lasted two years. The new increased percentage will help continue funding to the Social Security system. The wage ceiling on which Social Security is taxed has also been increased to $113,700. Medicare tax is unlimited, but if you earn more than $200,000 an additional 0.9% will also be withhold.

Income Earners over $200,000

This tax increase was one that was put into place when the healthcare bill was passed. This tax will be labeled a Medicare surtax and is a 3.8 percent additional tax on net investment income. This tax applies to taxpayers with modified adjusted gross income that exceeds a threshold ($250,000 for married filers and $200,000 for singles).

Income Earners over $250,000

Dependent and Personal Exemptions Decreased

Beginning in 2013, taxpayers with incomes in excess of the below gross income levels will lose some or all of their exemption deductions.:

  • Singles at $250,000
  • Married jointly at $300,000
  • Head of household at $275,000
  • Married filing separately at $150,000

Removal of Some Itemized Deductions

The same income guidelines as decreased deductions apply to itemized deductions. Earners can lose up to 80% of there deductions for previously exempt-able items such as mortgage interest, charitable contributions, property taxes, and state income taxes paid.

For Income Earners over $400,000

Tax Rates on Standard Taxable Income

For a large percentage of taxpayers, tax rates will remain the same as 2012. For single filers with taxable income above $400,000, married filers with income over $450,000, married filing separately over $225,000 and heads of household with taxable income over $425,000, the new 39.6% rate will replace the 35% tax rate for income over these amounts. All other tax rates on income will remain the same. Here is the tax table for 2013.

Tax Rate Single Married Filing Joint
10% Up to $8,950 Up to $17,900
15% $8,951 – $36,250 $17,901 – $72,500
25% $36,251 – $87,850 $72,501 – $146,400
28% $87,851 – $183,250 $146,401 – $223,050
33% $183,251 – $398,350 $223,051 – $398,350
35% $398,351 – $400,000 $398,351 – $450,000
39.6% Over $400,000 Over $450,000

 

Capital Gains and Dividend Income

If you happen to fall into the highest income bracket on the tax table ($400,000+ income), your capital gains and dividend income tax rate increases from 15 percent to 20 percent.

How do you feel about the new tax laws and schedule?