Beginning in January of this year, numerous changes to the tax code have begun affecting Americans. The changes range from new taxes for higher wage earners to new codes on your W-2 form, and a lot of nuisances in between.
The first change that higher-income earners will see is additional taxes being withheld. Taxpayers with adjusted gross incomes of $200,000.00 for individuals and $250,000.00 for married persons will have to pay additional Medicare taxes. The rate of 2.35 percent will be imposed on these taxpayers, which is up from 1.45 percent which the rest of Americans pay. This increase is a little difficult for employers to track because they do not know what the wages of the other spouse are. This can cause a headache come tax time for couples. If the amount is wrongly withheld by the employer, the couple will have to pay the additional amount come tax time.
One change you might have noticed when you received your W-2 for 2012 is a new code in Box 12. Box 12 is used to report everything from 401(k) deductions to life insurance payments. The new code DD has been added to represent the cost of an employee health insurance. The amount represents both employee and employer portions of the health care cost, and might come as a surprise to you about the amount that insurance costs. This disclosure is required under the Affordable Care Act, and marks the amount of your healthcare that is not subject to taxes.
If you are an employee that usually contributes to a Flexible Spending Account, you have probably felt the squeeze of the new requirements. Flexible Spending Accounts are pretax monies which can be used for everything from prescriptions to doctor’s copayments. These accounts used to allow you to defer any amount of money to the plan, but had to spend it before year end. In 2013, the maximum that you can defer into these accounts is $2,500.00.
Another change for 2013 that you won’t notice until tax time is that the medical deduction floor has been raised. In 2012, you could deduct any medical expenses that you had if they exceeded 7.5 percent of adjusted gross income. For example, if your adjusted gross income was $50,000.00 in 2012, you could deduct any medical expenses that exceeded $3,750.00. In 2013 the amount is raised to 10 percent of adjusted gross income, so using the same scenario you would have to have in excess of $5,000.00 of medical expenses for them to be deductible.
Finally, for taxpayers with an adjusted gross income of $200,000.00 for individuals, and $250,000.00 for married couples, a new tax called the Net Investment Income Tax will begin to be felt. The Net Investment Income Tax is an additional tax on investment income of 3.8 percent. Investment income includes: interest, dividends, and security sales, just to name a few. Many tax professionals like me are suggesting that taxpayers move their investments into Municipal Bonds and rental properties, where cash flow is excellent and most of the gains are eaten up by depreciation.
A lot has changed for 2013, perhaps it is time to sit down and talk to your tax advisor.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle, The Complete Guide to the Affordable Care Act’s Tax Provisions available on Nook and Kindle, The Complete Guide to Retirement Plans for Small Businesses available on Nook and Kindle, The Complete Guide to Estate, Gift and Trust Taxation, available on Nook and Kindle, and The Complete Guide to Hiring an Accountant, available on Nook and Kindle.