January, 2013

Summary of 2013 Tax Changes

Income-tax rates: All rates remain the same as last year, except, the maximum marginal tax rate rose from 35% to 39.6% for tax payers filing as individuals with incomes over $400,000 and for tax payers filing jointly with incomes over $450,000.

Investment taxes: Capital-gains and dividend taxes increased from 15% to 20% for tax filers in the top income tax bracket.

Payroll taxes: The payroll tax on the first $113,700 in wages increased from 4.2% to 6.2%.

Estate taxes: The estate-tax exemption remains at $5 million but will be indexed for inflation going forward. Tax rates above the exemption amount rose from 35% to 40%.

Alternative minimum tax (AMT): The exemption amount for the AMT will be permanently adjusted for inflation.

Itemized deductions: Personal exemptions and itemized deductions phase out for tax filers with incomes above $250,000 for individuals, $300,000 for joint filers, and $275,000 for heads of households.

Family credits: The Child Tax Credit and Income Tax Credit are extended for another five years. Child and dependent care credit became a permanent credit and is capped at $3,000 for one child and at $6,000 for two or more children.

Adoption credit: This credit moved from temporary to permanent status, but it is no longer a refundable credit, but a simple deduction. That means a tax filer cannot get back more money, based on this credit, than he or she owes in taxes.

Marriage penalty relief: This tax relief moved from temporary to permanent for the standard deduction, the 15 percent bracket, and the Earned Income Tax Credit.