There have been a number of important tax developments in 2013 that could impact you and your business in this and future tax years. Among the more notable changes include:
- Additional Medicare Tax. Beginning with 2013 tax returns, there will be an additional Medicare tax of 0.9% on certain high income earners. This tax generally applies to earned income in excess of $200,000 for single and head of household filers, $250,000 for married filing jointly filers and $125,000 for married filing separately filers. When applicable, employers are required to withhold the additional 0.9%.
- Tax on Net Investment Income. Beginning with 2013 tax returns, single and head of household taxpayers with modified adjusted gross income (MAGI) in excess of $200,000, married taxpayers filing jointly with MAGI over $250,000 and married taxpayers filing separately with MAGI over $125,000, are subject to an additional 3.8% Medicare tax on certain net investment, such as interest, dividends, rents, royalties and net gains from the sale of property. The tax is generally calculated by multiplying 3.8% by the lesser of net investment income for the year or the amount by which MAGI exceeds the $200,000/$250,000/$125,000 income threshold. The threshold amounts are not indexed for inflation.
- Phase-Out of Itemized Deductions. Beginning in 2013, the total amount of itemized deductions allowed is reduced by three percent (3%) of adjusted gross income in excess of $250,000 for single taxpayers, $275,000 for head of household taxpayers, $300,000 for married taxpayers filing jointly and $150,000 for married taxpayers filing separately. A taxpayer may not lose more than 80% of itemized deductions due to the phase-out.
- Phase-Out of Personal Exemptions. For 2013, a taxpayer’s personal exemption are phased-out by 2% for each $2,500 or fraction thereof by which the taxpayer’s adjusted gross income exceeds $250,000 for single filers, $275,000 for head of household filers, $300,000 for married filing jointly filers and $150,000 for married filing separately filers. In 2013, a married taxpayer filing jointly will have all personal exemptions phased out at income of $422,501.
- Increase in Top Tax Brackets. For the 2013 tax year, there is a new top tax bracket of 39.6%. This rate applies to income in excess of $400,000 for single filers, $425,000 for head of household filers, $450,000 for married filing jointly filers and $225,000 for married filing separate filers. The previous top tax bracket was 35%.
- Same Sex Couples Must File as Married Filing Jointly or Married Filing Separately. Effective September 16, 2013, same-sex couples who were legally married in jurisdictions that recognize same-sex marriages will be treated as married for federal tax purposes. This rule applies regardless of where the same-sex couple currently resides.
- Small Employer Tax Credit. Effective January 1, 2014, employers with no more than 25 full-time employees who offer health insurance coverage to their employees may be eligible to receive a tax credit. The employees must have annual equivalent wages that average no more than $50,000. The maximum credit available is 50% of the premium payments made on behalf of employees.
- Employer Shared Responsibility Payment Delayed until 2015. Effective January 1, 2015, employers with more than 50 full-time equivalent employees may be subject to penalties if they do not offer insurance that meets certain minimum affordability standards to their employees. This penalty was originally set to be enforced beginning January 1, 2014.
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