2nd posting - Information every taxpayer needs to be aware of
Several weeks ago our tax accountant sent us a 2012 Mid-Year Newsletter Tax Update. After reading over it and talking to a couple friends about the information, I thought my blog readers might also benefit from the information. This information has been helpful in preparing me for the 2013 tax increases that our family will experience. I hope it will also assist you and your family.
Here are a few highlights from the newsletter:
1. Alternative Minimum Tax (AMT) increases. Today approximately 3-5 million middle and upper middle class taxpayers find themselves paying an Alternative Minimum Tax. Starting in 2013, this number could exceed 20 million taxpayers without an extension of the AMT "patch".
2. Earned Income Tax Credit (EITC) available for fewer taxpayers. During 2012, the number of taxpayers who qualified for this popular tax credit was greatly expanded with changes in this credit. Those expanded income qualifications and added dependent categories are scheduled to roll back at the end of this year. If you received EITC in 2011 or expect to receive it in 2012 you should forecast the impact it will have on you in 2013.
3. Child Tax Credit cut in half. The Child Tax Credit is $1,000.00 in 2012 with some of the credit being refundable. Refundable credits can give you money back even if you owe no Federal Income Tax. In 2013, the credit is cut by 50% to $500 and the refundable nature is set to expire.
4. Social Security Tax Cut is Gone. After much debate, Congress granted a 2% drop in employee and self-employed social security taxes through 2012. This "found money" is gone after 2012 creating an average annual drop in over $500 per employee's take home pay.
5. Medical Expense Threshold is Going Up. When the Health Care Reform Act was signed into law it included a tax provision that raises the threshold for medical expenses prior to being able to deduct them from your income, for all income levels. The new threshold goes into place in 2013. Effective 2013 and beyond, the Adjusted Gross Income (AGI) threshold limit goes from 7.5% to 10% of your AGI. Thankfully there is an exclusion built into the law that allows taxpayers 65 or older to continue to use the lower 7.5% of AGI amount.
6. Income Tax Rate Changes for Married Filing Joint/Widow.
AGI $1 - $17,400 will increase from 10% to 15%. (the lowest income earners in our society will see the largest tax increase of 5%)
AGI $17,401 - $70,700 remains steady @ 15%
AGI $70,701 - $142,700 will increase from 25% to 28%
AGI $142,701 - $217,450 will increase from 28% to 31%
AGI $217,451 - $388,350 will increase from 33% to 36%
AGI over $388,350 will increase from 35% to 39.6%
Plan now to ensure you will not be surprised by the drop in your after-tax income with the increased rates. (please note: these tax increases also apply to Single, Head of Household and Married Filing Seperately, HOWEVER the income thresholds vary for each category.
7. Starting 2014 - Employer Health Care Benefits Will Be Taxed as Income. Again, when the Health Care Reform Act was signed into law it included a tax provision that counts employer health care benefits as income. This will raise the Adjusted Gross Income (AGI) of millions, thus raising their tax rates even more than projected above.
8. Starting 2014 - Health Care Devises and Hospital Stays will be Taxed. Another tax provision of the Health Care Reform Act that was signed into law includes a provision to apply sales tax to all health care devices (such as bandages, crutches, wheelchairs, diabetes testing and injection supplies, inhalers, blood pressure testing supplies, etc.) and all hospital stays, including out-patient/day surgery stays (prep and recovery rooms, etc.).
As stated above, I hope this information will help you and your family plan and prepare for the upcoming reduction you may see in your take-home pay AND expected tax bill or refund.