Tax laws change every year, and it is important to be aware of those changes. 2013 in particular has brought changes that have been widely discussed in the media. Some of these changes can mean less money in your pocket at payday, so being informed of that ahead of time can help you to prepare and budget accordingly. Here are some new tax laws to watch out for in 2013, with explanations to help you cut through the media hype.
1. Upper income families will pay more in 2013. Individuals who make more than $400,000 per year and couples who make more than $450,000 will move into a higher tax bracket. While these people paid a 35% tax rate last year, this year they will pay 39.6%. That’s an increase of almost 5%. The capital gains tax will also increase for upper-income families. In this upper tax bracket, the tax rate on capital gains and dividends is going up to 20%. This increase does not apply to lower tax brackets. Estate taxes are increasing, too. Estates valued at more than $5,000,000 will be taxed at a rate of 40%, up from last year’s rate of 35%.
2. Payroll taxes are changing, too, and those changes will impact lower and middle class tax brackets. For the last two years, Social Security tax was temporarily reduced as a stimulus to help out workers during tough economic times. That program has gone away, restoring Social Security taxes from 4.2% to the previous rate of 6.2%. This translates to an increase of $1,800 per year for a person who earns a salary of $30,000 per year.
3. The Affordable Care Act surcharge will affect individuals who earn more than $200,000 per year and couples who make more than $250,000 per year. This new tax will charge 3.8% on income from rent, interest, royalties, dividends, and certain capital gains.
4. The taxable wage ceiling for Social Security is increasing in 2013. This year, the Social Security wage ceiling goes up to $113,700. When it comes to Medicare, there is no taxable wage ceiling; you are taxed regardless of income. However, you will be charged an additional 0.9% if your income is more than $200,000.
5. The Earned Income Tax Credit is seeing some changes to its guidelines in 2013, as well. This is good news for low-income and middle-income families. The Earned Income Tax Credit will increase from $5,891 to $6,044. This applies to married couples who file jointly and have three or more dependents.
These changes as a whole will affect a great number of Americans. Many people are probably all ready aware of the reduction in their paycheck, even if they don’t know the specific details of the tax law changes.