2013 Tax Updates 
July 9, 2013

    Numerous changes are coming in 2013 as a result of the "fiscal cliff" deal instituted by the Obama administration. In addition, the Patient Protection and Affordable Care Act that was signed by President Obama in March 2010 continues to initiate changes to the health care industry in phases, with many beginning in 2013. As these provisions begin to become effective, we wanted to inform you of the major impacts of each and how it will affect your future tax scenario.

Tax Rates for 2013
Individual Rates
   
     All the individual marginal tax rates are preserved in 2013 at 10%, 15%, 25%, 28%, 33% and 35%. However, there is now a top rate of 39.6% for single filers with taxable income over $400,000 and $450,000 for married filing joint taxpayers. The following table should provide you with some insight on these dramatic changes.

013 Income Tax Rate Table

*Note: The rates in this column are additional taxes added to the Ordinary Income Tax Rate schedule in the third column.
Changes Due to Health Care Reform

3.8% Tax on Net Investment Income

     As a result of the Affordable Care Act, there will be a 3.8% Medicare tax on net investment income beginning January 1, 2013. This additional tax due will apply to single taxpayers with adjusted gross income (AGI) exceeding $200,000 and couples filing jointly with AGI exceeding $250,000 (see table above). The 3.8% tax is imposed on the lesser of 1) net investment income or 2) the amount 
that AGI exceeds $200,000 (single taxpayers)/$250,000 (married filing joint taxpayers). Net investment incomeincludes "unearned" income such as net rental income, dividends, taxable interest, capital gains, royalties, passive income from investments (i.e. partnerships), etc.

Medicare Payroll Tax Increase

     An additional tax resulting from the health care reform is a 0.9% Medicare surcharge tax on earned income. This tax is separate from the 3.8% tax mentioned above and is different in that it applies only to earned income (i.e. wages paid by an employer). The tax will apply to individual taxpayers with adjusted gross income (AGI) above $200,000 and couples filing jointly with AGI above $250,000. Typically, the Medicare payroll tax is 2.9% with the employee responsible for 1/2 (1.45%) and the employer responsible for the other 1/2 (1.45%). With the new tax provision, taxpayers that exceed the thresholds mentioned above will be subject to the additional 0.9% tax on earned income.

Reporting Requirements for Businesses

     Numerous reporting requirements by businesses are being implemented as a result of the health care law. One of these requirements is that all employers with $500,000 or more in annual revenue must notify all employees about health insurance exchanges that begin in 2014, as well as possible government subsidies available. Employees must be furnished with this notice no later than October 1, 2013. Employees hired after October 1st must be given the notice when hired. The department of labor has issued two models that will satisfy content requirements. One is for employers offering a health plan and the other is for employers that do not. Each can be found atwww.dol.gov/ebsa/healthreform.
     These new tax laws and changes are complex with numerous rules and implications. Please contact us with any questions you may have regarding how the new rules will impact your business or individual tax circumstances, or if you would like more information.
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