2013 Tax Law Changes

Legislation Changes for 2013

Highlights of Income Tax Law Changes for 2013

Change in tax rates
Tax rate on net capital gain and qualified dividends
Additional Medicare Tax
Net Investment Income Tax
Expiration of rate reduction on the employee portion of social security taxes and self-employment tax
Federal tax treatment for same-sex married couples
Medical and dental expenses
Personal exemption amount increased for certain taxpayers
Limit on itemized deductions
Credit for prior year minimum tax
Standard mileage rates
Business use of a home - simplified method
Identity Protection Personal Identification Number (IP PIN)

Highlights of Income Tax Law Changes for 2013
Change in tax rates	Top
The highest tax rate for 2013 has increased to 39.6%. The new rate applies to the part of your taxable income that exceeds: $400,000 if single, $425,000 if head of household, $450,000 if married filing jointly or qualifying widow(er), and $225,000 if married filing separately.
Tax rate on net capital gain and qualified dividends	Top
The maximum tax rate of 15% on net capital gain and qualified dividends has increased to 20% for some higher-income taxpayers. You may be required to pay tax at the 20% rate on part or all of your net capital gain if your taxable income exceeds: $400,000 if single, $425,000 if head of household, $450,000 if married filing jointly or qualifying widow(er), and $225,000 if married filing separately.
Additional Medicare Tax	Top
A new 0.9% tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 if single, head of household, or qualifying widow(er). This tax is reported on new Form 8959.
Net Investment Income Tax	Top
You may be subject to a new tax on net investment income. This tax is 3.8% of the smaller of (a) your net investment income or (b) the excess of your modified adjusted gross income over: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 if single, head of household, or qualifying widow(er). Net investment income generally includes taxable interest income, dividends, capital gains, rental income, royalties, non-qualified annuities, income from businesses trading in financial instruments or commodities, and passive activity income. This tax is reported on new Form 8960.
Expiration of rate reduction on the employee portion of social security taxes and self-employment tax	Top
The rate reduction for 2011 and 2012 that reduced the tax imposed on the employee portion of social security taxes and the self-employment tax by 2% expired on December 31, 2012. For employees, the social security tax withheld on wages for 2013 has increased to 6.2% (on wages up to $113,700). For self-employed individuals, the tax on net earnings from self-employment for 2013 has increased to 15.3% (on earnings up to $113,700).
Federal tax treatment for same-sex married couples	Top
If you have a same-sex spouse whom you legally married in a state or foreign country that recognizes same-sex marriage, you and your spouse generally must use married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state or foreign country that does not recognize same-sex marriage. In addition, a legally married same-sex couple is treated as married for all other federal tax provisions where marriage is a factor. Most states that do not allow same-sex couples to marry also do not recognize same-sex marriages for state tax purposes, although there are exceptions.
Medical and dental expenses	Top
You can deduct only the part of your medical and dental expenses that is more than 10% of your adjusted gross income (7.5% if either you or your spouse were born before January 2, 1949). If you are married and meet the age requirement, the 7.5% floor will apply even if you are not filing a joint return.
Personal exemption amount increased for certain taxpayers	Top
The personal exemption amount is increased to $3,900. But the amount is reduced if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if married filing jointly or qualifying widow(er).
Limit on itemized deductions	Top
You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if married filing jointly or qualifying widow(er).
Credit for prior year minimum tax	Top
The credit for prior year minimum tax is no longer partly refundable.
Standard mileage rates	Top
The 2013 rate for business use of your vehicle has increased to 56.5 cents a mile. The 2013 rate for use of your vehicle to get medical care or to move has increased to 24 cents a mile. $400,000 if single, $425,000 if head of household, $450,000 if married filing jointly or qualifying widow(er), and $225,000 if married filing separately.
Business use of a home - simplified method	Top
You may use a new simplified method to determine your expenses for business use of your home. The method is an alternative to the calculation, allocation, and substantiation of actual expenses. In most cases, you will figure your deduction by multiplying the area (measured in square feet) used regularly and exclusively for business, regularly for day care, or regularly for storage of inventory or product samples, by $5. The area you use to figure your deduction cannot exceed 300 square feet. The simplified method cannot be used to figure the deduction for rental use of your home.
Identity Protection Personal Identification Number (IP PIN)	Top
If you are filing a joint return and both taxpayers receive an IP PIN, only the taxpayer whose social security number (SSN) appears first on the tax return should enter his or her IP PIN. However, if you are filing electronically, both taxpayers must enter their IP PINs.

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