Taxpayers making more than $250,000 (married filing jointly (MFJ)), or $200,000 (single), may experience 2013 marginal tax rate increases ranging from 13% to 189% over current 2012 rates  – Taxable estate of $5,120,000 will see an increase of 22,659,990.00% over 2012 – if your estate is over $5,120,00 have your food tested at all family holiday parties. (SEE CHART BELOW)

It’s anyone guess if congress will take any action prior to the end of the year. So having a plan in place early is critical. If you own a crystal ball I would love at least 10 minutes.

  • Wages & Self-Employment Income over $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS)) will be subject to an additional .9% Medicare Hospital Insurance Tax – depending on your W-4 on file with your employer once you cross these thresholds your employer is automatically required to withhold the additional .9%
  • Qualified Dividends will now be taxed as ordinary income. Tax rates increase from 15% to (39.6 + 3.8) 43.4% for $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS))
  • Long Term Capital Gains increase from 15% to 20% or 23.8% for MAGI over $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS))
  • Plus all passive income from Interest, Rents, Royalties, Annuities for MAGI over $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS)) is subject an additional 3.8% Medicare Hospital Insurance Tax
  • Federal Estate and Gift Tax Exemption drops to $1,000,000 from $5,120,000 – Taxable estate of $5,120,00 will see an increase of tax of $2,266,000 from zero

Income Type

Maximum Marginal Tax Rate

Maximum Marginal Tax Rate

New Medicare Hospital Insurance tax (HI tax)*

New Net Investment Income Tax (other than earned income)*

Combined Maximum Marginal Tax Rate

Net Percentage Increase

Current Law (Pre-1/1/13)

(Post-12/31/12)

(Post-12/31/12)

(Post-12/31/12)

(Post-12/31/12)

(2013 vs. 2012)

Wages and S/E income > $250,000 (MFJ)/>$200,000 (Single)

35%

39.6%

0.9%**

N/A

40.5%

15.7%

Long-Term Capital Gain — Maximum Rate***

15%

20%

N/A

3.8%

23.8%

58.67%

Qualified Dividends

15%

39.6%

N/A

3.8%

43.4%

189.33%

Passive Interest, Rents, Royalties, Annuities, Other (IRA’s not Subject)

35%

39.6%

N/A

3.8%

43.4%

24%

Flow through Income — Active Trade/Business

35%

39.6%

N/A

N/A

39.6%

13.14%

Flow through Income — Passive Trade/Business

35%

39.6%

N/A

3.8%

43.4%

24%

Estate & Gift Tax Rates  Federal Exemption from $5,120,000 drops to $1,000,000

35% over 5.12 Mil

55% over 1 Mil

N/A

3.8 % added on to Trust & Estate non-distributed income

55%

22,659,990.00%

Our next blog will discuss strategies and planning – unless of course I get my hands on that crystal ball!