Fiscal Cliff Recap - How Much Will Your Taxes Go Up In 2013?

Larson Financial Group, the nation's largest financial planning firm exclusively for doctors, provides a Fiscal Cliff recap to clearly illustrate how each income level will be taxed in 2013.

St. Louis, MO (PRWEB) January 03, 2013

Larson Financial Group, the nation's largest financial planning firm exclusively for doctors, provides a Fiscal Cliff recap to clearly illustrate how each income level will be taxed in 2013.

Nearly all American wage earners will see their total tax rate increase by at least 1% in 2013. The American Taxpayer Relief Act of 2012 (Fiscal Cliff bill) combined with various other laws, now in effect, has caused a tax rate increase for almost every American taxpayer. The amount of tax each individual will owe depends on a number of factors: income, number of dependents, tax deductions, marital status, alternative minimum tax, and others.

Summary of 2013 Tax Changes:

Income up to $113,700 (per person whether single or married)

Tax payers will pay an additional 2% in social security taxes on their income. This is $1,000 in additional tax for $50,000 of income with a maximum increase of $2,274 per person for income of $113,700.i

Income over $200,000 (single) or $250,000 (married)

Taxpayers will pay an additional .9% in Medicare taxes on any income over the $200,000 (single) or $250,000 (married) threshold. This is $900 more in taxes for every $100,000 earned in excess of the $200,000‐$250,000 limit.

Taxpayers will also owe 3.8% in Medicare taxes on investment income (includes income from interest, dividends, capital gains, annuities, and more). This is an additional $380 in taxes for every $10,000 earned through investment income.ii

Income over $250,000 (single) or $300,000 (married)

The new tax laws state that personal exemption deductions will begin to get phased out. Presumably, a deduction is completely lost for earners making more than $375,000. Increased taxes could be as much as $1,544 per eligible dependent.iii

Some itemized deductions are reduced by up to 3% of taxpayer income. Worst case this well‐hidden tax could effectively increase the income tax rate by an additional 1% ‐ 1.19% on income over $250,000 (single) or $300,000 (married). In other words, taxpayers could pay $1,190 more in taxes for every $100,000 earned over the $250,000/$300,000 threshold.iv

Income over $400,000 (single) or $450,000 (married)

The income tax rate will increase on any income over this amount by 4.6%. This means taxpayers could owe an additional $4,600 for every $100,000 earned in excess of the $400,000 (single) or $450,000 (married) threshold.

The long‐term capital gains and dividend tax rate will increase from 15% to 20%. Also note the 3.8% Medicare increase already discussed for these types of income.v

What about the Alternative Minimum Tax?

Those that fall under the Alternative Minimum Tax (AMT) will not likely see a major change. Although the new legislation puts a permanent inflation adjustment provision in place for AMT, it is only standardizing what was already being done on an annual basis. This means that taxpayers may experience less of a tax increase than those shown above if they were already falling under AMT as the rate increase may not be enough to bump them out of AMT. If a taxpayer remains in AMT, then the only real impact they would feel is the additional social security taxes owed on the first $113,700 of income as well as the Medicare tax increases.

By Tom Martin, CFP®, CPWA®, AIF®
Author and Partner at Larson Financial Group

i - The reduced Social Security tax rate of 4.2% for 2011 – 2012 is eliminated bringing the rate back to 6.2%.
ii - Patient Protection and Affordable Care Act
iii - American Taxpayer Relief Act of 2012; assumes tax payer is at the 39.6% marginal rate and is completely phased out of the 2013 deduction of $3,900 per dependent
iv - Re‐enactment of PEASE provisions under the American Taxpayer Relief Act of 2012
v - American Taxpayer Relief Act of 2012

The article above is for informational purposes only. It is not intended to be specific tax advice and is not a recommendation, as every taxpayers financial situation is unique. Please contact a tax advisor before taking any action.

For the original version on PRWeb visit: http://www.prweb.com/releases/prweb2013/1/prweb10287245.htm