It’s time to buckle up and get ready for some changes coming in 2013.
The tax break is over for everyone who works. For the past two years, taxpayers who work have had to pay less Social Security tax on their wages. An increase in the amount of taxes taken out of your paycheck begins Dec. 31.
This increase will affect everyone with a job regardless whether you have withholding taxes taken out of your paycheck. In 2011 Congress, in an effort to jump start the economy, provided a 2 percent decrease in the amount of Social Security tax taken out of every paycheck. This tax break was extended through 2012 and expires on Dec. 31. The increase has nothing to do with who won the election, it was decided on earlier this year.
Taxpayers with jobs can expect a 2 percent increase in the amount of taxes taken from each paycheck. This adds up to about $40 a paycheck for taxpayers who make $50,000 a year. Though not a substantial amount, with gas and food prices rising, that $40 may hurt a little.
In addition, if your earnings are above $250,000 for those married filing jointly, $125,000 for those married filing separately and $200,000 for everyone else, there will be two new Medicare-related taxes effective after Dec. 31. Right now, every taxpayer who works has 1.45 percent Medicare taxes taken out of each paycheck. Beginning Jan. 1, an additional 0.9 percent surtax will be taken from the taxpayer’s earned income over the previously listed amounts.
There will also be a 3.8 percent surtax on a taxpayer’s net investment income. The tax applies to the smaller of the taxpayer’s net investment income (which includes Partnerships and S-Corp income) or the taxpayer’s modified adjusted income that exceeds the above amounts.
Bonus depreciation was 100 percent for 2011 and has dropped to 50 percent in 2012. This special depreciation ends after Dec. 31. Bonus depreciation can only be used for assets placed in service during the calendar year. The maximum Section 179 decreased to $139,000 in 2012 (down from $500,000 in 2010-11). This amount decreases drastically to $25,000 in 2013.
One additional change that may affect many is the expiration of the Alternative Minimum Tax patch that has assisted higher earning taxpayers for the past several years. The AMT tax is confusing to most taxpayers, and the easiest way to explain this tax is to think of a parallel tax system for incomes above a certain level. The IRS expects taxpayers to pay a certain amount of taxes for higher incomes, and a set tax is given in this parallel system. If with deductions, the taxpayer falls below what the IRS expects, an adjustment is made to the itemized deductions so that the expected tax and the actual tax are more in line with one another.
A patch has existed for the past several years, along with a higher income threshold . Unless Congress extends the so-called AMT patch to continue the higher exemption amount and the allowance for personal credits, taxpayers with incomes over $150,000 (MFJ) will have a nasty surprise at tax time. If Congress does extend this patch, it will probably be late in the year which may cause a delay in e-filing, as in 2010.
A more detailed list of expired or upcoming tax provisions can be found on the IRS website. For more information, visit www.irs.gov and type "2012 tax changes" in the search engine.
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at email@example.com.