You're Rich. How Much More Tax Will You Pay In 2013?

Source: http://www.forbes.com/sites/anthonynitti/2013/01/09/youre-rich-how-much-more-tax-will-you-pay-in-2013/

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

1. 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);
2. 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;
3. 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).

AHCA (ObamaCare) Increases

1. 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
2. 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.

So what does it all mean? The mad scientists at the Tax Policy Center have done what they do best, crunching the numbers to determine just how hard high-earners will be hit in 2013. If we assume that those taxpayers with taxable income in excess of $450,000 represent the top 1% of the population, then compared to a baseline where…

• All of the 2012 tax rates were extended,
• The 2% payroll tax cut was extended, and
• The two additional Obamacare taxes were never enacted

…these taxpayers will pay, on average, an additional $73,633 in tax in 2013 when compared to 2012, or roughly the amount Allen Iverson spends every eight days:
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

Mo’ money, mo’ problems, indeed.

These posts are for informational use only to educate people about their online income taxes and the financial world around them. If you found this helpful, share the original article or this one, and help spread the word! With tax season rapidly approaching let us get you the best income tax return you can possibly have by e-filing! Give us a comment if you want to give your opinion.

Visit our site: http://www.onlinetaxpros.com

And our blog: http://www.onlinetaxprofessionals.blogspot.com

Please like us on Facebook: http://www.facebook.com/onlinetaxpros

and follow us on Twitter: @onlinetaxpros