You may have heard the term “Taxmageddon” but do not know what it signifies. Taxmageddon is the name given to what is currently scheduled to be the largest tax hike in our history.
If nothing is done by Congress, here are just some of the tax changes will go into effect on January 1, 2013:
- The current 2% reduction in Social Security payroll contributions by the employee will end. That is a major tax increase (although the already unfunded Social Security fund needs the cash inflow.)
- Medicare payroll tax is currently a flat 2.9% on all wages and self-employment profit. But beginning 2013, those with earnings or self-employment over $200,000 the rate becomes 3.8%.
- Personal income tax rates will rise on January 1, 2013
- The 10% bracket is expanded and increased to 15%
- The 25% bracket becomes 28%
- The 28% bracket becomes 31%
- The 33% bracket becomes 36%
- The 35% bracket becomes 39.6%
- The child tax credit will be reduced to $500 from the current $1000 per child.
- The standard deduction will no longer be doubled for married couples relative to the single level.
- The estate tax changes drastically: Currently the estate tax is 35% with an exemption of $5 million. On January 1, the tax rate becomes 55% on amounts over a million.
- Capital gains tax will rise from 15% to 23.8%.
- The dividends tax will rise from 15% to 43.4% because of scheduled rate hikes plus Obamacare’s investment surtax.
- Medical Device Tax: Companies making medical devices retailing for over $100 with impose a 2.3% excise tax on gross sales (not net of costs).
- Flexible spending accounts will be capped at $2500 where the amount now is unlimited. For those with known expensive medical needs this will be a problem.
- The deductibility of those with large medical expenses will change. Currently medical expenses that exceed 7.5% of adjusted gross income (AGI) are deductible. That 7.5% hurdle jumps to 10% of AGI. Those 65 or older will enjoy a waiver from the change for the period 2013-2016.
- Businesses will have to depreciate equipment purchases over a number of years instead of enjoying a short expensing period as they have now.
- The “research and experimentation tax credit” disappears.
- Tax credits for education will be limited.
- Teachers will no longer be able to deduct classroom expenses.
- Employer-provided educational assistance is curtailed.
- Charitable Contributions from IRAs no longer allowed.
Compiled by Kris Hunt, Executive Director, CoCoTAX from material by Americans for Tax Reform.