Confused by the Tax Changes?

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Congress, the Senate, and President Obama agreed on a tax compromise for 2013 and 2014.   I know everyone thought it was a tax decrease- but that was ONLY because the taxes had INCREASED automatically with the change of the calendar to 2013.  For most of the US, those who earn money from salaries, they will see a tax INCREASE, since the payroll tax holiday that obtained for the past two years disappeared.  (The Social Security tax on one’s pay was reduced from 6.2% to 4.2%.  Unfortunately, that meant that the trust fund was not collecting enough money to keep solvent.)

It is entirely possible that we have not seen the last of the tinkering.  But, for now, these are the rules; I put them all in a chart, to make them simpler to comprehend.

Please note that these changes – agreed to so late in the process- means that individual taxpayers cannot file their taxes before 30 January this year.  There are NO extensions to the date they are due (15 April).  Corporations can file in mid-January, since there were no changes to their taxes.  FAFSA (Free Application for Federal Student Aid- a misnomer since almost all schools use this form to determine the scholarships/financial aid they provide) deadlines have not changed; the colleges prefer them filed by 31 January- later filings mean a lesser chance for aid.  (That’s a 1 day window, by the way.)

Tax rates and their changes from 2012 to 2013 :

(The numbers like 400K/450K indicate the adjusted gross income figures at which the changes are in effect for single filers and married filers.)
 Item of Interest 2012 2013
Top rate 35%    for incomes of $388350 41%, including Obamacare  $400K/$450K
Estate Tax 35% 40%
Capital Gains 15%  earnings of $35350/$70700 23.8%,  including Obamacare $400K/$450K
Dividends 15% earnings of  $35350/$70700 23.8, including Obamacare  $400K/$450K
Payroll Tax 4.2%, salaries up to $110100 6.2%, salaries up to $113700
Payroll Tax Surcharge ($200K/$250K) 0 0.9%
Exemption phase-out None $175K/$260K, no exemptions by $296K/$385K
Teachers $ 250 deduction for supplies $ 250 deduction, expires in 2014
Use Sales tax in lieu of state tax 2 y extension
AMT (alternative minimum tax) Permanent inflation adjustment

So, those are the changes,in the abstract.  Here’s what the taxes will look like in practice, for various scenarios (earners in various brackets:  bottom 20%, median, top 1%, and top 0.1%).  NOTE:  These computations do not include the fact that most top earners obtain their income from dividends and capital gains- and NOT from salaries.  As such, they will pay a lower amount in taxes, than is shown in the chart- but at rates at least 5% higher than they did in 2012.

How much taxes will I pay in 2013?

 

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6 thoughts on “Confused by the Tax Changes?”

      1. Tax for someone making $20,000 is almost $4,000. Who can live on the $20,000 let alone $16,000 after taxes? Did you really vote for this man and his cohorts? I would love to see them all live on $16,000 for one year. I don’t think that could even be done easily in Kingsville, TX, a very small town that used to have a good charity system.
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        1. Let’s not exaggerate. It is high- but 3704 is NOT almost $ 4000, when one is only making 20000. Since we are dealing in THIS strata, that works out to $10 an hour; the difference between the REAL tax and what you said amounts to almost a week’s pay. And, again, about half of what this SINGLE person, no exemptions, pays is for social security and Medicare ($1530 out of the 3704).
          If we want to insure that folks CAN live without working at retirement, the only chance this poor bloke has is with social security and Medicare. So, the return on investment for him (or her is substantial).
          Let’s try thinking of the big picture.
          Don’t get me wrong- I think we need better infrastructure, better schools, better services in America. But, if we can’t convince the Republicans to tax the middle class incomes of $ 250K (family $200K single) more, then the Republicans also get their wish. Services/infrastructure/schools have no money available in the budget. (Yes, we need to tax those whose income exceeds $ 450K and NOT from salaries but dividends and capital gains and ESPECIALLY carried interest (the BS chimera that it is) at higher rates… not 20%= but the going rate for that strata, too.

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