As tax season draws nearer and elections are even sooner there is a lot of contention about how to proceed with the tax reforms that are needed. The specific worry is that the Bush Tax Cut laws are now lapsing and congress must decide whether to renew the laws or to work towards a reform. With Obama wanting to impose tougher restrictions on high-wage earners and relieving lower-wage earners there is a lot of debate on how to reform the tax code. This is all going to come to a head at the lame duck session that will take place after the election in November.
With all this uncertainty there is something that is sure to change if the Bush Tax Cuts are not reinstated for 2013. You can find them listed below.
- Tax Rates: The lower tax rates have been enjoyed by everyone for many years but that will change drastically if the laws are not renewed. Specifically the 10% rate will rise to 15% rate; the 25% rate will rise to 28%; the 28% rate will rise to 31%; the 33% rate will rise to 36%; and the 35% rate will rise to 39.6%
- Payroll Tax Cut: If not renewed employees will have to pay the extra two percentage points on the Social Security Tax again.
- Maximum Estate and Gift Tax: Right now the maximum rate is 35% but that will revert to the 55% tax rate with a $1 Million cap.
- Higher Alternative Minimum Tax Exemptions: This will revert to the lower levels before the tax relief act was passed meaning that more people will be subject to this tax. Generally the levels are $33750 for single and head of household filers; $45000 for married people filing jointly; and $22500 for married people filing separately.
- Marriage Penalty: The marriage penalty will be reinstated primarily affecting higher-wage earning couples filing jointly. Also spouses will not be able to use their late husband/wife’s unused exemptions.
- Long-Term Gains and Dividends: The current tax of 15% will increase to 20%.
- Popular Tax Breaks: Some of the popular tax breaks like college tuition teacher supplies relief the IRA charity payout break states sales tax write-offs and the R&D (Research and Development) credit may go away.
- Exemptions and Standard Deductions: Also the personal exemption will be repealed and the itemized deduction phaseouts will be reinstated.
As of right now the tax breaks may be extended in 2013 so congress can work out reform. For more information about this topic download our free 2013 Legislation Update Guide.