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2013 Tax Increases
Thursday, June 06, 2013

Thanks to repeal of the so-called "sunset" of the Bush-era tax cuts, the new law makes the 10%, 15%, 25%, 28% 33% and 35% tax brackets permanent. However, the new law adds a higher 39.6% bracket, which begins at $400,000 for singles, $425,000 for heads of households, $450,000 for joint filers and surviving spouses, and $225,000 for marrieds filing separately for 2013.

Please remember that there are also new federal capital gains rules in effect. Starting in 2013, there will be a new long-term capital gains rate of 20% which applies to taxpayers who fall within the new 39.6% tax bracket. The new capital gains tax rates for 2013 and future years are as follows:

  • 0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets
  • 15% applies to long-term gains and dividend income if a person is in the 25%, 28%, 33%, or 35% tax brackets
  • 20% applies to long-term gains and dividend income if a person is in the 39.6% tax bracket.

Also beginning in 2013, capital gain and dividend income ("net investment income") will be subject to an additional 3.8% Medicare tax for taxpayers with income at or above a certain threshold.  The threshold is $250,000 for joint filers ($125,000 for marrieds filing separately) or $200,000 for other filers. So, for example, a single filer with $50,000 dividends and capital gains of income falling in the new 39.6% rate bracket will see the tax on that income rise to 23.8%. For taxpayers with dividends and gains below the 39.6% bracket but above the threshold amount, the tax bite will increase from 15% to 18.8%.
 
Finally, an individual is liable for Additional Medicare Tax of 0.9% on wages, other compensation, or self-employment income (together with that of his or her spouse if filing a joint return) exceeding certain thresholds. The thresholds are $250,000 for marrieds filing jointly, $125,000 for marrieds filing separately, or $200,000 for all other taxpayers. 
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