Impending 2013 Tax Rate Increases

Provided that Congress fails to extend the Bush tax cuts, many significant rate changes and other substantive changes will take effect in 2013.  This will definitely impact both the tax planning and tax preparation considerations for many Americans.

If Congress allows the Bush tax cuts to expire, ordinary income tax rates will increase for most individual taxpayers beginning in 2013. As discussed below, qualified dividend income that is currently taxed at long-term capital gain rates will be taxed at these higher ordinary income rates. The following table sets forth the scheduled rate increases, using 2012 dollar amounts which will be adjusted for inflation in 2013.

Individual Tax Brackets (2012 Dollar Amounts) Marginal Rate
Unmarried Filers Married Joint Filers
Over But Not Over Over But Not Over 2012 2013
$0 $8,700 $0 $17,400 10% 15%
8,700 35,350 17,400 70,700 15% 15%
35,350 85,650 70,700 142,700 25% 28%
85,650 178,650 142,700 217,450 28% 31%
178,650 388,350 217,450 388,350 33% 36%
388,350 388,350 35% 39.6%


The maximum rate on long-term capital gains is scheduled to increase from 15 to 20 percent in 2013. Individual taxpayers in the 10 and 15 percent ordinary income tax brackets currently pay no tax on long-term capital gain. These taxpayers are scheduled to be subject to a 10 percent long-term capital gain rate in 2013. An 18 percent maximum rate will apply to capital assets purchased after 2000 and held for more than five years.  Qualified dividend income that is currently taxed at long-term capital gain rates will be taxed at the higher ordinary income rates. Additionally, the 3.8 percent Medicare contribution tax discussed in many of our previous blog posts, will increase the effective rate of tax on long-term capital gains for certain higher-income taxpayers to as high as 23.8 percent.

LTCG Maximum Rates 2012 2013 2013 —Including Medicare Contribution Tax
Long-Term Capital Gain 15% 20% 23.8%
Qualified 5-Year Capital Gain 15% 18% 21.8%


For assistance with strategic tax planning and preparation please contact us at 201-947-8081 or 646-688-2807, or email us at

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