Tax Law Changes for 2013

 

Most new/changes to the tax law took place when the American Taxpayer Relief Act of 2012 (ATRA) was signed on January 2, 2013.

Individual Income Tax Rates – tax years after 2012 the rates of 10%, 15%, 25%, 28% , 33% and 35% are permanent.  Starting in tax year 2013 the new 39.6% rate starts for taxpayers with income over the following amounts

Married filing Jointly & Surviving Spouse  $450,000

Head of Household                                     $425,000

Single                                                           $400,000

Married filing Separately                            $225,000

Capital Gains & Qualified Dividends – Top tax rate of 20% is set permanently.  For 2013 the income threshold is the same as the 39.6% tax rate.   However with the new Net Investment Income (NII) tax of 3.8% the rate is actually 23.8%.  For taxpayers at under 25% rater the Capital Gains and Dividends rate is still 0%.   Under 39.6% to 25% the rate is 15% for Capital Gains and Dividends.

Marriage Penalty Relief – The ATRA made the standard deduction for a married filing joint return double the standard deduction for a single filer permanent.  Also the 15% tax bracket for MFJ is now 200% of the 15% tax bracket for a single filer.

Personal Exemption Phase-out – The ATRA reinstated the phase-out of personal exemptions.

Filing Status                AGI Beginning of Phase-out          AGI Completed Phase-out

MFJ, Qualified                      $300,000                                        $422,500
Widow(er)

HH                                       $275,000                                        $397,500

S                                          $250,000                                        $372,500

MFS                                      $150,000                                        $211,250

Pease Limitation

Higher income taxpayer’s total allowable itemized deductions are reduced by 3% up to 80% based on AGI thresholds

Filing Status          2013 AGI Threshold

MFJ, QW                       $300,000

HH                               $275,000

S                                  $250,000

MFS                              $150,000

American Opportunity Credit

The credit is equal to 100% of the first $2000 of qualified tuition and related expenses and 25% of the next $2000 for a total credit of $2500.  The first $1500 of the credit is deducted from the tax liability and the $1000 is refundable.  This credit is for the first four years of post-secondary education.

Child Tax Credit

The ATRA extended the $1000 per child tax credit until 2017.  The credit can be refundable based on income and tax liabilities.  This credit is for children 16 and under.  Once a child turns 17 the taxpayer is no longer eligible for this credit.

Earned Income Credit

The ATRA extends EIC for up to 3 children until 2017.

Energy Credit for Individuals

The credit for installing certain energy efficient items in a personal residents will continue in 2013.  The lifetime credit is $500 with a limit of $200 for windows and skylights.

Other Provisions

Higher AGI threshold for student loan interest deductions is now permanent and the 60 month limit is eliminated permanently.

Coverdell ESA $2000 contribution is extended permanently.

Exclusion from income and employment taxes employer-provided education assistance up to $5250 is permanently extended.  Also restores the exclusion for graduate-level courses.

Extends permanently the child and dependent care credit rate of 35%, the $3000 cap on expenses for one child and $6000 on two or more children.

Expiring on December 31, 2013 

Above the line deduction for qualified tuition expenses.

Extends the teacher’s classroom expense of $250.

The exclusion of cancellation of indebtedness on qualified principal residence of up to $2million.

Deduction of PMI premiums.

State and local sale tax (including vehicle sales tax) deduction.

Tax free IRA distributions of up to $100,000 donated to a qualified charity.

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