As the tax filing deadline nears, it’s important to understand the key tax changes that took effect in 2013. Below is a clear summary of the main differences between 2012 and 2013 that may affect your tax situation.
- Social Security Payroll Taxes: The employee share of Social Security tax reverted to 6.2% in 2013, up from the temporary 4.2% rate that was withheld in 2012. The Social Security wage base for 2013 is $113,700, meaning earnings above that amount are not subject to Social Security withholding.
- Medicare Payroll Taxes: The Medicare tax rate remains 1.45% on wages with no earnings cap. For 2013, employers must withhold an additional 0.9% Medicare tax on wages paid to an individual in excess of $200,000 in a calendar year, regardless of filing status or wages paid by another employer.
- Medicare Surtax: Beginning in 2013, a 3.8% Medicare surtax applies to a portion of net investment income for high-income households. This surtax applies to the lesser of net investment income or the amount by which modified adjusted gross income exceeds the threshold ($200,000 for individuals, $250,000 for married couples filing jointly). Net investment income includes items such as capital gains, dividends, interest, rents and royalties, and other passive income.
- Itemized Deductions and Personal Exemptions: Itemized deductions and personal exemptions begin to phase out for taxpayers with adjusted gross income over specified amounts—generally above $250,000 for single filers and $300,000 for married couples. The phase-outs are complex but generally increase marginal tax rates for affected taxpayers by roughly 1–1.5%.
- Capital Gains: For tax years after 2012, the top rate for long-term capital gains and qualified dividends increases to 20% for taxpayers with higher incomes—married couples with taxable income over $450,000 and single filers with taxable income over $400,000. Taxpayers below those thresholds generally remain eligible for the 15% rate.
- Federal Estate and Gift Taxes: The federal estate-tax exclusion is permanently set at $5 million and indexed for inflation. The top estate-tax rate rises to 40%, up from 35% in 2012. The annual gift tax exclusion increases to $14,000 per recipient, up from $13,000.
- Qualified Charitable Distributions from an IRA: In 2013, individuals age 70½ and older may transfer up to $100,000 directly from an IRA to a qualified charity without treating the distribution as taxable income. If the distribution is made by February 1, 2013, it can be counted toward the 2012 required minimum distribution and tax year.
- Income Tax Rates: A new 39.6% income tax rate takes effect for taxable income above certain thresholds—$400,000 for single filers and $450,000 for married filing jointly. Income below those amounts generally remains taxed according to the 2012 brackets, which continue for lower-income ranges.
- Medical Expense Itemized Deduction: The threshold for deducting unreimbursed medical expenses rises from 7.5% to 10% of adjusted gross income for taxpayers under age 65 beginning in 2013. Taxpayers age 65 and older may continue to use the 7.5% threshold through 2016.
These items represent several of the most widely discussed tax changes for 2013, but they are not exhaustive. Many of these changes can affect tax planning, withholding, and filing strategies. Consult a tax professional to review how these changes apply to your individual situation and to plan appropriately for 2013 and subsequent years.