What Is My Tax Rate?

Confused about your 2013 tax rate?  You’re not alone.  With all the iterations of the “fiscal cliff” solutions from Capitol Hill, you’ve heard lots of numbers tossed around over the last several weeks.

Nearly everyone got some form of a tax increase in 2013 with the sunset of the payroll tax holiday.  All employees saw a 2% increase in their social security withholding from their paychecks.

Once your income starts to rise, you could be subject to higher income tax rates than recent years.

The Affordable Care Act is responsible for two new taxes effective for 2013.   If you have adjusted gross income (AGI) above $200,000 as a single filer or $250,000 for married filing jointly, you could be subject to the new 3.8% tax on net investment income and 0.9% tax on earned income.  Your AGI is your gross income with only a few adjustments and isn’t reduced for itemized deductions.

On top of those new taxes, the 39.6% income tax bracket was reinstated for single filers with taxable incomes (after itemized deductions) above $400,000 and married filers with taxable incomes over $450,000.

If you’re in the 39.6% bracket, you’ll also see an increase in your rates for long-term capital gains and qualified dividends.  Those rates increased from 15% to 20%.

Here’s a comparison of the top rates in 2012 and 2013 for various types of income.

Income Type

2012

2013

Long-term capital gains

15%

23.8%

Interest

35%

40.5%

Wages

35%

43.4%

But remember, it could be worse.  In 1944, the highest tax rate was 94%!  Yikes!