Yes, I really mean 2013. They are also going up in 2014 – sigh.
Federal increases, selected:
- New top federal tax bracket of 39.6% is applied to all income over $450,000, married filing jointly, and $400,000, for a single filer. The prior top bracket of 35% was also retained.
- The long-term capital gain and qualified dividend rates increase from 15% to 20% for those in the new 39.6% tax brackets.
- There is a new 3.8% tax on net investment income tax for taxpayers earning more than $250,000 for married filing joint or $200,000 for single filers. In addition to traditional investment income, such as interest and dividends, net investment income includes most rental income, capital gains and many types of business income.
- A new 0.9% Medicare tax for those with wages, salaries, self-employment income totaling over $250,000 married filing joint or $200,000 for single filers. The tax is only on the excess.
- Congress added back the phase-out of personal exemptions and the phase-out of itemized deductions (e.g. mortgage interest and charitable contributions). If you make in excess of $300,000 married filing jointly or $250,000 single then count on losing some deductions.
- Prior to 2013, a taxpayer could deduct medical expenses that exceeded 7.5% of their adjusted gross income. For 2013 and forward the limit is 10%.
NC increases, selected:
- The qualified tuition deduction, still available in 2013 on your federal, is now eliminated for NC purposes.
- Qualified mortgage insurance premiums are still deductible in 2013 on your federal but no longer for NC purposes.
- 2013 is the final year for the special tax free allowance for forgiveness of qualified principal residence debt for federal purposes. This provision is no longer allowed by NC. This one could cost some taxpayers quite a bit of NC tax.
- The adoption credit is reduced from 50% to 30% for 2013 and eliminated beginning in 2014.
What can we conclude? If you make over $250,000 married or $200,000 single, you will likely pay more income tax for 2013 than you did for 2012.