We are only 30+ days into the new tax changes emerging from the year-end fiscal cliff deal, but President Obama this weekend said any spending cuts from the upcoming sequestration would need additional tax revenue. Simply put….. taxes may not be done going up.
We wanted to take a moment to talk about a Stealth Tax Increase… This was part of the year-end bill that may make your 2013 marginal tax rate be higher than you expect.
- Phaseout of Itemized Deductions – Starting in 2013 itemized deductions (mortgage interest, charitable deductions, state & local taxes, etc…) that you claim on Schedule A will be reduced by 3% of the excess of AGI over $250,000 for singles and $300,000 for couples. This could add up to 1.19% on your 2013 federal tax marginal rate.
- Loss of Personal Exemptions – Each exemption is trimmed by 2% over the same $250,000/$300,000 threshold. This could add up to 1.05% per exemption, which will add up to 4.2% for a family of four.
In other words, your marginal tax rate could be as high as 39.6% +3.8% (Medicare Surtax) + 1.19% (Itemized Phaseout) + 4.2% (Family of Four Loss of Personal Exemptions) for a whopping new marginal rate of 48.79% after factoring in loss of deductions.