2013 IRS Tax Code – Part 1

2013 IRS Tax Code – Part 1

For the past month, taxpayers were anxiously awaiting Congress’ resolution to avoid the fiscal cliff.  The resulting deal, “American Taxpayer Relief Act of 2012”, was passed early on January 1st, alleviating fears of dramatic tax increases.  Changes are in place for 2013, however, that will affect many Americans.  Here is a summary of some of the changes:

1. No more payroll tax holiday.  From 2010-2012, the Social Security tax withholding rate on income was temporarily reduced from 6.2% to 4.2%.  For self-employed individuals, this withholding was reduced from 12.4% to 10.4%.  With the passing of the 2013 tax laws, this payroll tax reduction was not extended.
2. Ordinary income tax rates.  The federal income tax rates of 10%, 15%, 25%, 28%, 33%, and 35% will continue in 2013.  Additionally, there will be an added tax rate of 39.6%.  This bracket will affect single filers with income above $400,000 and married filing joint taxpayers with income above $450,000.

Jessica Taylor

Associate Accountant, Davis & Hodgdon Associates CPAs