Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Nov 9

    Federal income tax rates are expected to rise. Many are fearful they will skyrocket. Unless Congress acts during the lame-duck session after the election, the so-called “Bush-era” tax cuts will expire and Federal income tax rates will rise for all individuals, except those in the 15% bracket. Effective January 1, 2013, payroll tax withholding will escalate 2%. Also in 2013, there will be an additional 0.9% Medicare tax on wages and self employment income above $200,000 ($250,000 if married, filing joint) and, for the first time ever, a new 3.8% Medicare surtax on investment income for certain taxpayers.

    Dividends could see rate spikes as much as 28.4%, from the current 15% rate to 43.4%, if the top 39.6% rate and the 3.8% Medicare surtax apply.

    The following table compares the 2012 regular tax rates to the 2013 tax rates if the “Bush-era” tax rates are allowed to expire as scheduled. CAUTION: This table does not take into account the phase-out of deductions including the phase-out of personal exemptions and itemized deductions. In addition, this table does not include AMT rates.

     

    (1) Includes 3.8% Medicare surtax on net investment income

    (2) Includes 0.9% Medicare surtax

    (3) Does not reflect phase-outs for itemized deductions or exemptions

     

    CAUTION! Proper calculations of an individual’s income tax liability cannot be made unless “with and without” calculations are made using tax planning techniques which consider the regular tax, the new Medicare surtaxes, the AMT, and the state income tax effects of a planning strategy.