Increased Social Security Payroll Tax Withholding Rates
The Social Security earnings cap was increased to $113,700 for 2013 and will be $117,000 for 2014.
Increased Income Tax Rates for High Earners
The American Taxpayer Relief Act of 2012 added a 39.6% tax bracket in 2013 for taxpayers with taxable income over; $400,000 for single filers, $425,000 for heads of household, $225,500 for married individuals filing separately, and $450,000 for joint filers. For 2014 the 39.6% tax bracket applies to taxable income in excess of $406,750 for single filers, $432,200 for heads of household, $457,600 for joint filers and $228,800 for married individuals filing separately.
Additional Medicare Tax on Wages & Self-Employment Income
Beginning in 2013, an additional 0.9% Medicare tax on Salary and Self-Employment Income is assessed on taxpayers’ income over $200,000 for single filers, $250,000 for joint filers and $125,000 for married individuals filing separately. If you receive W2 income, withholding of the additional 0.9% will begin after your wages reach $200,000.
Additional Tax on Investment Income
There is an additional 3.8% Medicare tax on net investment income for taxpayers with Modified AGI in excess of $200,000 for Single Filers, $250,000 for Married Filing Jointly and $125,000 for Married Filing Separately. The 3.8% will apply to the lesser of net investment income or the amount of Modified AGI in excess of the applicable threshold. Net investment income includes interest, dividends, royalties, rents, capital gains, annuities, and income from a business in which a taxpayer does not materially participate.
Capital Gains & Dividends Rates Increasing for High Earners
The top rate for capital gains and dividends increased effective January 1, 2013, from 15% to 20%. The top rate will apply to the extent that a taxpayer’s income exceeds the thresholds set for the 39.6% tax bracket. All other taxpayers will continue to enjoy the 0% or 15% rates.
Higher Threshold for Itemized Medical Expense Deductions
Beginning in 2013, the threshold for deducting medical expenses has been raised from 7.5% to 10%, however, the threshold remains 7.5% until 2017 for taxpayers over the age of 65 by December 31, 2013.
Limitation on Itemized Deductions & Personal Exemption Phaseout
Beginning in 2013, itemized deductions for high-earners is reduced by 3% of the amount by which the taxpayer’s income exceeds the income limit; however, the amount of itemized deductions cannot be reduced by more than 80%. The personal exemption is reduced by 2% for each $2,500, or portion thereof by which the taxpayer’s adjusted gross income exceeds income limits. The income limits for the phaseouts of itemized deductions and personal exemptions are: $300,000 for joint, $275,000 for heads of household, $250,000 for single, and $125,000 for married filing separately.
Federal Estate & Gift Tax
The federal estate tax exclusion for decedents dying in 2013 is $5,250,000 and $5,340,000 for 2014. The annual gift tax exclusion is $14,000 for 2013 and 2014.
Reminder: Tax Filing Deadlines
The due date to file your 2013 federal tax return is Tuesday April 15, 2014.