With a last-minute tax deal, Congress has made some significant changes that will affect individuals and businesses, and bring some certainty to tax planning. The big news is that payroll taxes will increase for working individuals, but other numbers will have a more positive effect on the bottom line. Although not exhaustive, below is a list of some of the numbers you should know:
- The 2% payroll “tax holiday” expired December 31, 2012 and was not renewed. That means an employee’s share of the social security tax will return to normal rates (an increase of 2% over 2012 rates), and as a result, employees will see a smaller paycheck.
- The estate and gift tax exemption increases to $5,250,000 for 2013 but the tax rate jumps to 40%. That means the first $5,250,000 passing by gift or inheritance, or a combination of both, is free from federal estate and gift tax. Any amount over the exemption will be taxed at the 40% rate.
- The annual gift tax exclusion amount increases to $14,000 for 2013. This means that a taxpayer may gift up to $14,000 to any number of individuals per year without requiring gift tax reporting, or counting toward the $5,250,000 estate and gift tax exemption amount.
- The tax rates under the Bush-era tax cuts have been made permanent with the exception that a new 39.6% rate will apply to taxable income over $400,000 for singles, $425,000 for heads of households, and $450,000 for married couples filing joint returns.
- The standard deductions increase for 2013; single filers get $6,100, heads of household get $8,950 and married couples filing jointly get $12,200.
- Personal exemptions also increase to $3,900 for filers and their dependents.
- The top capital gains tax rate increases to 20% for taxpayers considered high income (taxable income above $400,000 for individuals and $450,000 for married couples).
- The maximum 401(k), 403(b) and 457 plan contribution increases by $500 to $17,500 in 2013.