Tax Changes for 2013 in addition to those expected due to the “Fiscal Cliff”

A number of changes in United States Federal tax rates and amounts which were previously announced are likely to become effective as of January 1, 2013, even if Congress passes measures to remediate the so-called “Fiscal Cliff”.

Some of the highlights of those changes include the following:

  1. The annual gift tax exclusion per donor per donee will increase from $13,000 to $14,000.
  2. Under the Patient Protection and Affordable Care Act (PPACA), also referred to as Obamacare, there will be a Medicare surtax on investment income of 3.8% when Modified Adjusted Gross Income (MAGI) (Adjusted Gross Income, plus foreign earned income) exceeds the following thresholds:  (i) Married filing jointly:  $250,000; (ii) Single or head of household:  $200,000; (iii) Married filing separately:  $125,000; (iv) Head of household (with qualifying person):  $200,000; and (v) Qualifying widow or widower with dependent child:  $250,000.  These thresholds are not indexed for inflation.  The tax will be assessed on the smaller of the filer’s investment income or the excess of MAGI over the applicable threshold amount.  Also under the PPACA will be an additional Medicare tax of 0.9 percent on the same wages, compensation or self-employment income (together with that of his or her spouse if filing a joint return) currently subject to Medicare tax, if earned income exceeds:  (i) Married filing jointly:  $250,000; (ii) Married filing separately:  $125,000; (iii) Single:  $200,000; (iv) Head of household (with qualifying person):  $200,000; and (v) Qualifying widow or widower with dependent child:  $200,000.  Under PPACA, all wages paid to a taxpayer that are currently subject to Medicare Tax are subject to Additional Medical Tax, if they are paid in excess of the applicable threshold for an individual’s filing status.  Employers will have certain obligations to withhold Medicare tax on wages, and, in some instances, it may be prudent or obligatory for the taxpayer either to increase withholding from paychecks or to pay estimated taxes.  In addition, there will be other changes in costs for Medicare and health insurance coverage.  Proposed, complex regulations have just been issued.
  3. Maximum deferral amounts for traditional and Roth IRA contribution amounts will also increase, as will deferrals for 401(k) plans, 403(b) plans, 457 plans, SARSEP’s, SEP’s, and related catch-up contribution limits for those aged 50 and older will increase with most plans, as well.

There are, of course, additional changes in various categories of taxation.  Contact us with questions about tax planning.