If that title piqued your interest, you’re probably rich. And if so, it hasn’t been the greatest year for you: Obamacare upheld. No snow in Aspen. Romney lost. J.R. Ewing died. And to cap it all off, in the waning moments of 2012, Congress approved a fiscal cliff deal that is sure to lead to some uneasy moments in cavernous mansions all across the country.
Formally named the American Taxpayer Relief Act of 2012, the fiscal cliff deal preserved the tax rates, deductions, and credits for the Homers and Marges of the world, but it wasn’t so kind to the Monte Burnses. So how much will the tax liability of high-earners actually increase in 2013?
As a reminder, three provisions of the ATRA and two of the previously enacted Affordable Health Care Act (Obamacare) take aim squarely at the wealthy this year:
ATRA (Fiscal Cliff) Increases
- The maximum tax rates on ordinary income has increased from 35% to 39.6% on taxable income in excess of $450,000 (if MFJ, $400,000 if single);
- Similarly, the maximum rate on long-term capital gains and qualified dividends has increased from 15% to 20% on taxpayers with taxable income in excess of those same thresholds;
- The phase-out of itemized deductions and personal exemptions have returned; limiting the benefit of those reductions to taxable income for taxpayers with adjusted gross income in excess of $300,000 (if MFJ, $250,000 if single).
- Wage earners and self-employed taxpayers will pay an additional 0.9% tax on their earned income in excess of $250,000 (if MFJ, $200,000 if single); and
- Taxpayers with modified adjusted gross income in excess of $250,000 (if MFJ, $200,000 if single) will pay an additional 3.8% tax on their net investment income, i.e., dividends, interest, royalties, rents, other passive income and certain gains.
- All of the 2012 tax rates were extended,
- The 2% payroll tax cut was extended, and
- The two additional Obamacare taxes were never enacted
The increases break down like so:
- Increased payroll tax burden: $2,542
- Increases resulting from the additional 3.8% tax on net investment income: $20,583
- Increases resulting from the rise in the maximum rate on long-term capital gains and qualified dividends to 20%: $11,280
- Increases resulting from the rise in the maximum rate on ordinary income to 39.6%: $38,033
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