How will changes in tax policy affect your 2013 tax return?

A simple run-down of what tax changes are in store for 2013 and who will be affected

 

Financial pressure in Congress has caused substantial changes in Federal taxation. Here is a list of those changes, sectioned off by who the changes will most likely affect.

Everyone

Medical and dental expenses: You can only deduct medical and dental expenses that exceed 10% of your adjusted gross income, or 7.5% if you are 65 or over.

READ: The IRS owes you money – and you don’t even know it

Standard mileage rates on business use, medical care use, and moving: Rate of remuneration for using your vehicle for business increased to $0.565 per mile. Medical care – $0.24; Moving expense: $0.14

Adoption credit or exclusion: The maximum adoption credit or exclusion for employer-provided adoption benefits is increased to $12,970 for taxpayers with modified adjusted gross income under $234,580

Increase in employee’s share of payroll tax: Employees tax withholdings for social security will increase from 4.2% to 6.2% up to the social security wage limit of $113,700. Self-employed taxpayers will be subject to the same increase, from 10.4% to 12.4%. The deduction for self-employment tax has been restored to 50%.

The Good News (mostly for lower income taxpayers):

Earned income tax credit (EITC): The earned income tax credit (EITC) has been extended to include 2013. You can find out whether you qualify and how much you will be afforded at (Link to previous article)

Alternative minimum tax (AMT): Exemption amount increased to $51,900 ($80,800 if married filing jointly, widower, or $40,400 if married filing separately. If exempt, you need not pay the Alternate Minimum Tax (AMT).

Lifetime learning credit income limits: To qualify for a lifetime learning credit, modified adjusted gross income must be less than $63,000 or $127,000 if married filing jointly

Retirement savings contribution credit income limits increased: Claiming this credit is only available to individuals with modified adjusted gross income less than $29,500, married filing jointly $59,000, or head of household $44,250

READ: What tax evasion will cost you

In the Middle

Foreign earned income exclusion: Max exclusion has increased to $97,600

Income limits for excluding education savings bond interest increased: Excluding interest is now only possible if your modified adjusted gross income is less than $87,700 or $142,050 if married filing jointly.

Personal exemption: Personal exemption is increased to $3,900 for taxpayers with AGI less than $250,000 if single, $150,000 if married filing singly, $275,000 if head of household, and $300,000 if married filing jointly.

Itemized deductions: taxpayers with AGIs over $300,000 are limited in itemized deductions to $275,000 if head of household, $250,000 if single, and $150,000 if married filing separately may be reduced.

High Income taxpayers

Additional Medicare Tax: Depending on your income level and tax filing status, you could be responsible for an additional .9% tax for Medicare.

The income thresholds are printed below:

Married filing jointly	$250,000
Married filing separately	$125,000
Single	$200,000
Head of household	$200,000
Qualifying Widow(er)	$200,000

 

Net Investment Income Tax: An additional Net Investment Income Tax (NIIT) of 3.8% could be levied on the lesser of either: 1) net investment income; or 2) the excess of your modified adjusted gross income.

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