It’s That Taxing Time of Year Again

As you probably know by now, Congress acted just in time to avoid the so-called “fiscal cliff” by passing the American Taxpayer Relief Act of 2012. While there are many provisions of this new tax act, there are several that are of particular interest to most taxpayers. This is a short summary of some of those provisions.

Congress kept the 10% tax bracket which was set to expire and would have increased to 15% in 2013. In addition, the 15, 25, 28 and 33% tax brackets were also extended and Congress added a 35% bracket for income up to $400,000 for a single filer and $450,000 for married filers. It also created a new tax bracket of 39.6% for individual filers with income over $400,000 and married filing jointly with income over $450,000. (For the income levels in each tax bracket, click here to check out the marginal tax rates for each bracket which includes an example of how it works.)

Notably, the 2% reduction in the Social Security payroll tax was removed so that the taxpayer will pay 6.2% of his or her income up to $113,700 for Social Security and 1.45% of all income for Medicare. There is also an additional .9% Medicare tax for wage earners earning over $200,000 filing individually and $250,000 for those filing married jointly.

Finally, the personal exemptions are phased out beginning with income in excess of $250,000 for individual filers and $300,000 for those filing married jointly. This means that if you were claiming your children as an exemption because you had a larger income than your spouse, it might be time to revisit that arrangement.

As always, I recommend that you consult with a tax professional to determine the best way to file and how to minimize the amount of tax you pay. Remember, there is no law against taking advantage of the tax laws to minimize the amount of tax you are required to pay!

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