There is plenty of news to talk about when it comes to this year’s tax code, both good and bad. The widest impact will be felt because of a rollback of a two-year-old payroll tax cut, but many of the deepest tax hikes on tap for 2013 will affect primarily high-income earners.
Everyone will still see less money in their paychecks as a result of the social security payroll tax rollback. This increase (from 4.2% to 6.2%) is not really a tax hike, per se: it just gets rid of the temporary reduction that was intended to serve as a modest piece of fiscal stimulus. In fact, no matter how much we all like seeing more take-home pay on our paychecks, there are some who would argue that the tax break—which was implemented two years ago—shouldn’t have happened in the first place.
The wide range of changes means that the definition of “high-income earner” shifts depending on which aspect of the tax code you focus on. The agreement, for example, resulted in an upper-income tax bracket cut-off of $400,000 (and $450,000 for married couples filing jointly), with the top marginal tax rate going from 35% to 39.6%. Capital gains taxes also went up to 20% for this income bracket.
Different income cut-offs apply, however, for the new Medicare tax increases under Obamacare. Obamacare tax increases consist of two different elements: one is a 0.9% increase for anyone over the familiar $200,000 ($250,000 for married couples filing jointly) cut-off. The other slice of the healthcare tax pie is an additional 3.8% Medicare surtax on investment income that exceeds the $200,000/$250,000 cut-offs.
In my next post, I’ll focus on the more positive tweaks to the tax code. Whatever your situation, now is the time to talk with your financial adviser to evaluate how these changes will impact your family.