Tax rates, AMT patch set for 2013 tax year
A look ahead at taxes in 2013.
WASHINGTON — You can expect a lot less end-of-the-year drama on taxes in 2013.
But there's a price tag: The payroll tax holiday has ended for all workers, and higher-income people will bear a heavier tax burden.
Many people might have been surprised when they looked at their paychecks last month, and wondered why their take-home pay was less.
For the past two years, the employee's share of Social Security taxes was reduced from 6.2 percent to 4.2 percent as the country struggled to emerge from recession. But that 2 percentage point payroll tax holiday expired at the end of 2012 and was not renewed by Congress. That means workers earning $50,000 a year will pay an extra $1,000 in Social Security taxes in 2013. As income goes up, so does the tax bite.
And that can add up quickly, said Kathy Pickering, executive director of H & R Block's Tax Institute.
Social Security taxes are deducted on all income up to $113,700.
President Barack Obama signed legislation in early January to prevent the country from going over the fiscal cliff and immediate sequestration — mandatory spending cuts across the federal government. Also at issue were the tax rates set in 2001, when George W. Bush was president. Those lower rates were scheduled to expire at the end of 2012.
Throughout the negotiations with Congress, Obama had argued that wealthy people should pay more in taxes. They will, under the measure.
“Millionaires and billionaires will pay their fair share to reduce the deficit through a combination of permanent tax increases and reduced tax benefits,” according to a White House fact sheet.
“The changes that affect this year and beyond affect mostly higher-income taxpayers or the more affluent,” said Bob Meighan, a vice president at TurboTax, the tax software preparation company. “They will be facing higher tax rates. Not only that, they will also be facing limitations with regard to the write-offs.”
The fiscal cliff legislation established a new top tax rate of 39.6 percent for individuals whose taxable income is more than $400,000 a year and for married taxpayers filing jointly whose taxable income is more than $450,000. For those earning less, the tax rates range from 10 to 35 percent, depending on income.