With all of this recent talk about the fiscal cliff, it’s easy to get caught up in the hoopla and be quickly misinformed. To be of assistance, I want to advise you about some tax changes that you’ll want to be aware of, along with some changes being enacted with ObamaCare this year.
The most important thing to know: 98% of taxpayers will NOT have their federal income tax rates rise. This applies to individuals who make $400,000 or less a year or households with incomes totaling $450,000 or less a year.
A major income tax hike will apply for the wealthiest Americans. “Wealthy” is defined as making more than $400,000 for an individual or $450,000 for a household per year. For the first time in 20 years, the highest earners will have their marginal tax rate rise by 4.6% for a total of 39.6% income tax.
Essentially speaking, taxes will rise for all Americans in 2013. The White House reduced employee payroll taxes by 2% as an economic stimulus in 2011 and 2012. However in 2013, the payroll tax rate will return to its old level of 6.2% for Social Security taxes instead of 4.2%.
The Alternative Minimum Tax has been fixed to factor inflation so Congress no longer has to arrange a solution.
For individuals with gross incomes more than $250,000 a year and households with more than $300,000 a year, 80% of itemized deductions will be eliminated. Dividends will not be taxed as ordinary income either. Single Americans with taxable income higher than $35,350 and households with table incomes higher than $70,700 will have a top dividend tax rate of 15%. The wealthiest Americans will have a dividend rate of 20%. No taxes will be paid on dividends for investors in the 10% and 15% tax bracket.
Wealthy investors will pay 20% on long-term capital gains and qualified dividends this year. The wealthiest Americans will also be affected by this tax raise.
Unemployment benefits will remain through the end of 2013 for an estimated 2 million people.
Medicare payments to physicians will avoid drastic cuts for 2013 as a result of the new legislation.
Also as a result of the fiscal cliff, Americans over the age 70.5 will be allowed to make tax-free transfers from an IRA to a charity, university or other non-profit organizations this year.
While Congress works on a plan to replace automatic federal spending cuts , they will be postponed until March (originally supposed to occur January 2).
I also wanted to briefly inform you of the ObamaCare legislation that went into effect on the first of this year. It adds a 0.9% Medicare surtax on wage income. It also adds a 3.8% Medicare surtax on incomes higher than $200,000 a year for single Americas and $250,000 a year for households.
(Source: Lake Country Wealth Management)