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2013 IRS tax brackets

Posted By Claes Bell On 11/16/2013 @ 12:25 pm In Taxes | No Comments

It’s been almost a year since the fiscal cliff deal [3] that changed up the tax code, and for those preparing their taxes now, the results were mostly a big “meh”. Unless you earn more than $400,000 as a single filer or $450,000 as a married filing jointly, your taxes will remain the same for the near future. The Bush era tax cuts were extended for income levels under that threshold and there was a five year extension of the American Opportunity Tax Credit, Child Tax Credit, and Earned Income Tax Credit.

Below, you’ll see what the official 2013 IRS tax brackets will be as well as the “pre-fiscal cliff” predictions. I kept them just for history’s sake, I find that it’s useful to see what could’ve been as well as what actually is because it can help us understand what the future might bring.

If you’re looking for the 2012 tax brackets, you can find them at here [4].

2013 Official Tax Brackets

Tax Bracket Single Married Filing Jointly Head of Household
10% Bracket $0 – $8,950 $0 – $17,900 $0 – $12,900
15% Bracket $8,950 – $36,250 $17,900 – $72,500 $12,750 – $48,600
25% Bracket $36,250 – $87,850 $72,500 – $146,400 $48,600 – $125,450
28% Bracket $87,850 – $183,250 $146,400 – $223,050 $125,450 – $203,150
33% Bracket $183,250 – $400,000 $223,050 – $450,000 $203,150 – $400,000
39.6% Bracket $400,000+ $450,000+ $400,000+

What ended up happening was that the current Bush era cuts were extended (permanently, there’s no sunset provision as there was with the Bush era tax cuts) with the threshold of $400,000 and $450,000 being where taxes would be increased. You can compare it against the Current Law scenario below to see how much taxes were cut.

Investment Tax Rates

Long term capital gain tax rate is 10% for taxpayers in the 15% tax bracket and below, 15% for those in the 25%-33% tax brackets, and 20% for those in the highest tax bracket. Long term capital gains rates and dividend rates remain tied (dividends were set to increase to ordinary income rates).

Glad to have a resolution and see that most people will not being paying higher taxes in 2013!

Everything below this point was written before the fiscal cliff tax law was passed and exists just for comparison’s sake.

 

Three Fiscal Cliff Tax Proposals

All the experts [5] are pointing to three possible scenarios:

  • Current Law: The current law, in which Bush-Era tax cuts expire, goes into effect.
  • Obama Budget: President Obama’s Fiscal Year 2013 Budget Proposal is passed.
  • Bush Era Cuts: The current brackets are extended, the Bush-Era tax cuts are extended.

Under current law, the Bush-Era tax cuts are set to expire and we go to the tax brackets we knew back in the Clinton Administration. Of the three, those rates are the highest for all filers. Alternatively, we have the Bush-Era tax cuts extended, in which there is a benefit to everyone. Lastly, we have the Obama Administration’s FY2013 proposal that would increase rates on the highest income earners.

Three Scenario Tax Brackets

Here are the tax brackets under the Current Law scenario:

Tax Bracket Single Married Filing Jointly Head of Household
15% Bracket $0 – $35,500 $0 – $59,300 $0 – $47,600
28% Bracket $35,500 – $86,00 $59,300 – $143,350 $47,600 – $122,860
31% Bracket $86,000 – $179,400 $143,350 – $218,450 $122,840 – $198,900
36% Bracket $179,400 – $390,050 $218,450 – $390,050 $198,900 – $390,050
39.6% Bracket $390,050+ $390,050+ $390,050+

And the brackets under the Obama FY2013 Budget:

Tax Bracket Single Married Filing Jointly Head of Household
10% Bracket $0 – $8,750 $0 – $17,500 $0 – $12,500
15% Bracket $8,750 – $35,500 $17,500 – $71,000 $12,500 – $47,600
25% Bracket $35,500 – $86,000 $71,000 – $143,350 $47,600 – $122,850
28% Bracket $86,000 – $179,400 $143,350 – $218,450 $122,850 – $198,900
33% Bracket $179,400 – $199,350 $218,450 – $241,900 $198,900 – $222,750
36% Bracket $199,350 – $390,050 $241,900 – $390,050 $222,750 – $390,050
39.6% Bracket $390,050+ $390,050+ $390,050+

Finally, here’s what they’d look like if the Bush Era cuts are extended as is:

Tax Bracket Single Married Filing Jointly Head of Household
10% Bracket $0 – $8,750 $0 – $17,500 $0 – $12,500
15% Bracket $8,750 – $35,500 $17,500 – $71,000 $12,500 – $47,600
25% Bracket $35,500 – $86,000 $71,000 – $143,350 $47,600 – $122,850
28% Bracket $86,000 – $179,400 $143,350 – $218,450 $122,850 – $198,900
33% Bracket $179,400 – $390,050 $218,450 – $390,050 $198,900 – $390,050
35% Bracket $390,050+ $390,050+ $390,050+

How do all the other various deductions and exemptions change? Here is the standard deduction under each scenario:

Filing Status Current Law Obama Budget Bush Cuts Ext.
Single $5,950 $5,950 $5,950
Married Filing Jointly $9,950 $11,900 $11,900
Head of Household $8,750 $8,750 $8,750

The personal exemption remains $3,800 under all scenarios.

The brackets are slightly higher compared to last year, to account for inflation, but aren’t much of an increase. The brackets themselves have not changed though they may at the end of this year since the Bush tax cuts are expiring, after a two year extension.

Capital Gains Rates

Here’s another part of the tax rates that is subject to what Congress and the President decide. Right now, if current law were to remain, the long term capital gain tax rate would be 10% for taxpayers in the 15% tax bracket and below and it would rise to 20% for those in higher brackets.

President Obama proposed to only raise long term capital gains rates on high income tax brackets, which start at $241,900 for couples, $199,350 for single filers, and $222,750 for heads of household (and these values would be indexed to inflation).

IRA & 401(k) Contribution Limits

Not exactly related to tax brackets but I wanted to throw in there that the contribution limits for your 401(k) and IRA have increased as well. For 2013, you can now contribute up to $17,500 to your 401(k) and $5,500 to your IRAs.

Many Other Provisions

The tax brackets might speak to how your marginal income will be taxed but the reality is that so many deductions, credits, and other tax items are set to expire this year. The Tax Policy Center [6] has a great recap of it all, including big items such as the payroll tax credit [7] and the American Opportunity tax credit. Many of these can have a big impact on what happens to your tax liability.

(Photo: kozumel [8])


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[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/2013-irs-tax-brackets.html

[3] fiscal cliff deal: http://www.bargaineering.com/articles/fiscal-cliff.html

[4] here: http://www.bargaineering.com/articles/2012-irs-tax-brackets.html

[5] experts: http://www.taxpolicycenter.org/taxtopics/2013-Allow-top-two-rates-to-rise.cfm

[6] Tax Policy Center: http://www.taxpolicycenter.org/taxtopics/2013-Budget.cfm

[7] payroll tax credit: http://www.bargaineering.com/articles/payroll-tax-cut-extended.html

[8] kozumel: http://www.flickr.com/photos/kozumel/2228603119/sizes/l/in/photostream/

Thank you for reading!