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TAX RATE INCREASES YOU WON’T READ ABOUT IN THE NEWSPAPER

The government publishes marginal tax rates so many people think they know what their tax bracket is. In many cases, especially if you are a high earner, your marginal tax rate is actually higher. It’s because of tax benefits being wiped out, effectively increasing your tax rate. For example, the reduction in itemized deductions increases 1.19% to your marginal tax rate. From 2013 on, the write-offs are reduced by 3% of the excess of adjusted gross income over $300,000 for married couples filing joint. You can start to feel this if you are in the 28% bracket.

The government is also phasing out personal exemptions. That can increase your taxes by more than one percent per exemption. There are also two more new taxes in 2013 that can increase your marginal tax rate. They are: 1) 9/10% Medicare surtax; and 2) 3.8% Medicare surtax on net investment income, which is interest, dividends, royalties, and rental income.

Capital Gains? If you are in the 10 or 15% tax bracket in 2013, capital gains and dividends are tax free. However, once you get pushed into the 25% tax bracket, which is $72,500 of taxable income for couples, then this tax starts to take effect at 15% of your gains and dividends. If you are in the 39.6% tax bracket, then the top rate of 20% kicks in.

The New Tax Law for 2013 and Beyond: The Internal Revenue Service issued 2013 withholding tables which you can find at www.irs.gov\pub\irs-pdf\n1036. Remember, the new Social Security tax rate for employers has returned to 6.2%.

The Filing Season: The start of this year’s filing season doesn’t start until January 30. The IRS is blaming Congress because it didn’t complete the income tax rules until January 1, 2013. Congress claimed they needed more time to reprogram their computers.