brown on green, A Regular column about finances

by David Brown

Tax Us, Tax Us, and More Taxes: Preparing for the End of Bush Tax Cuts

Unless Congress acts before the end of this year, everyone will face huge tax increases. And given the political climate in Washington, it seems unlikely Congress will act. Taxpayers will be impacted in several different areas of the tax code.

The current and 2013 tax brackets are listed below. If the cuts expire, the 10% bracket will go away, exposing the poorest Americans to the 15% bracket first. In addition, all of the brackets will move up.

Brackets...............2013 Brackets

10%.....................15%
15%.....................28%
25%.....................31%
33%.....................36%
35%.....................39.6%

This bracket creep will affect middle class taxpayers severely. For instance, a couple making more than $59,300 in 2013 after exemptions and standard deduction will find themselves in the 28% bracket. For 2012, that same couple would have to make more than $142,700 to hit the 28% bracket.

In addition to the bracket changes, capital gains and dividend taxes will go up as well. The maximum rate for long-term capital gains will go from 15% to 20%. Taxpayers who are currently in the 10% and 15% brackets will go from paying no tax on capital gains to 10%. Dividends will be treated as ordinary income, which means they will be taxed the same as interest income instead of a flat 15%.

The marriage penalty laws will also be repealed; meaning the standard deduction for married couples will go down, adding more pain for married American taxpayers. For higher income taxpayers, itemized deductions and personal exemptions will begin to phase out. In addition, the 2% rollback on Social Security tax is also scheduled for repeal. This too will affect every taxpayer.

The chart below illustrates how taxpayers will be affected at different income levels. A $266 per month reduction in take-home pay seems like a daunting challenge in this still-recovering economy. Let’s hope Congress and the President have the courage to act before December 31.

2013 Income Tax Projections

(Married Filing Jointly With Two Children under 17)

Income...............Annual Tax Increase............Monthly Take Home Reduction

$50,000 .............$3,203................................$266.91
$75,000..............$3,703................................$308.58
$100,000.............$5,470................................$455.83

David Brown, CPA, became director of the Free Will Baptist Foundation in 2007. Send your questions to David at david@nafwb.org. To learn how the Foundation can help you become a more effective giver, call 877-336-7575.