Newsletter 2012
Newsletter 2012
Other Changes
Other Changes
Print Full ArticleLast Reviewed: Jan 2013
Last Modified: Jan 2013
2013 Changes Not Part of the Fiscal Cliff Package
There are certain tax increases and changes to deductions that are coming for 2013 that are not part of the fiscal cliff legislation. The first is a new Medicare tax hike for single individuals making more than $200,000 and married filers making more than $250,000. The additional tax is 0.9 percent of earned income over these amounts. Self-employed individuals will see their SE Tax increase accordingly. The tax will be withheld from employees earning more than the threshold amounts, but we expect many wage earners with multiple W-2s and dual income spouses to be under-withheld because their employer is unaware that the income threshold has been exceeded. Our quarterly estimated tax calculations for 2013 will also need to be adjusted to account for this new tax.
There is also a new 3.8 percent Medicare tax on investment income for taxpayers exceeding these same income levels. This tax only applies to typical investment income categories like interest, dividends and capital gains. We can partially dispel one rumor that this tax will apply to the sale of a home. The exclusion for gain on the sale of your home also applies to this new tax, so you will only pay this extra tax on capital gains from the sale of your home if your gain exceeds $250,000 if you are single or $500,000 if you are married filing a joint return.
There is one significant deduction change coming that is not part of the fiscal cliff legislation. The threshold for the medical expense deduction will increase from 7.5% of adjusted gross income to 10% for all filers under the age of 65 (stays at 7.5% for the over-65 crowd). This will decrease total itemized deductions and increase taxable income for many taxpayers. Oregon filers over age 62 will continue to deduct 100% of medical expenses on their Oregon returns.
When you combine these new taxes and reduced deductions with the fiscal cliff tax rate increases you can see why some congressman strongly resisted any tax rate increases. Even with the compromises made to get the fiscal cliff package passed, higher income earners will be paying significantly more in taxes once they surpass the $200,000 to $250,000 range. Those that surpass the $400,000 to $450,000 range are paying just over 40% in marginal tax rates on earned income and close to 44% on investment income. Many people pay additional state taxes on top of this, taking the combined marginal rate north of 50%.
