The tax package passed by Congress on New Year’s Day extends most of the tax cuts passed during the Bush-era. Individuals earning less than $400,000 and married couples earning less than $450,000 will be eligible to reap the benefits of those tax cuts. As a result of the new tax package, the income tax rate would be increased from 35 percent to 39.5 percent for individuals earning over $400,000 and married couples earning over $450,000.
As part of the Obama Care Initiative passed in 2010, Individuals earning over $200,000 and married couples earning over $250,000 also face a 3.8 tax on investment income. According to the Tax Policy Center analysis, households earning between $500,000 and $1 million would incur an average tax increase of $14,812. Households earning over $1 million may incur an average tax increase of $170,341.
While approximately 99 percent of Americans are protected from the tax increase, middle class Americans may still end up paying more federal taxes in 2013 because the new tax package did not prevent the temporary reduction in the Social Security payroll tax from expiring at the end of 2012. According to the Tax Policy Center, approximately 77 percent of American households may incur higher federal taxes under the new tax package.
High income households will incur the largest tax increases, but the increases are also likely to affect middle class households as well as some low-income households. Households earning between $40,000 and $50,000 will incur an average tax increase of $579, while households earning between $50,000 and $75,000 will face an average tax increase of $822.
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