February 17, 2025

A Roundup of Coming Tax Changes for Individuals

More than a dozen tax cuts are set to expire Dec. 31 and a couple of new taxes are scheduled to start with the new year. Combined, they would affect nearly 90 percent of taxpayers, from the very richest to the very poorest, with the typical household’s tax bill rising by about $2,000 in 2013, according to the nonpartisan Tax Policy Center. Taxes on one-percenters would rise an average of $121,000.

On Tuesday, Congress will reopen discussions about how to deal with the combination of spending cuts and tax increases looming at year-end, and maybe even dip a toe into a broader tax overhaul.

“It would be bad for the economy and it would hit families that are already struggling to make ends meet,” President Obama said on Friday of the scheduled increases in taxes. “While there may be disagreement in Congress over whether or not to raise taxes on folks making over $250,000 a year, nobody — not Republicans, not Democrats — wants taxes to go up for folks making under $250,000 a year.”

While legislators are expected to try to reverse or temper many of the scheduled tax increases, at least a few appear to be a certainty. Accountants and tax lawyers are expecting a flurry of frantic calls in the last few weeks of this year as clients rearrange their affairs to minimize the blow.

“I don’t expect to have any respite from now till the end of the year,” said Robert Willens, the president of his tax and accounting practice in New York. “Clients are very concerned and kind of confused about what to do, whether they should be taking any affirmative steps or waiting to see what happens.”

INCREASES YOU SHOULD EXPECT At least two categories of tax increases are widely expected to materialize in some form.

A payroll tax cut given in the 2011 and 2012 calendar years — intended as a temporary stimulus — is set to expire, and so far both Democrats and Republicans seem ready to let that happen, although there could be some provision made to ease the pain for the lowest earners.

The lapsing payroll tax cut affects everyone who works, or about three-quarters of all tax filers. A household in the middle quintile, roughly between $40,000 and $65,000, can expect its taxes to rise by an average of $672 next year, while a household in the top quintile, being paid more than $108,000, will pay an average of $1,950 more, according to the Tax Policy Center.

With the re-election of President Obama, the taxes imposed by his health care overhaul will also almost certainly remain.

Starting in 2013, high-income Americans will pay an additional tax of 0.9 percent on their earnings above $250,000 if they are married and above $200,000 if filing singly. These households will also pay an additional 3.8 percent on capital gains, dividend and interest income over those same thresholds. The average household in the top income quintile — the group of Americans most likely to be hit by these new taxes — will owe an additional $1,141.

TAX CHANGES OBAMA WANTS The fate of the other scheduled tax increases is less clear. Mr. Obama has advocated for some of them, but the Republicans, who control Congress, have opposed them.

In particular, Mr. Obama wants to let lapse the lower rates begun in the Bush era on income, capital gains and dividends for higher earners, whom he has defined as those earning more than $250,000 for married couples and $200,000 for others.

These tax rates were previously set to expire at the end of 2010, but were extended for two years. Letting them expire at the end of this year would raise an additional $52 billion in 2013.

Allowing the income tax rates for high earners to lapse means that, for married couples, income over $397,000 would be taxed at 39.6 percent instead of the current 35 percent, and that income from $222,300 to $397,000 would be taxed at 36 percent instead of the current 33 percent.

For those in the top income quintile, these provisions would raise their tax liability by an average of $2,282 next year. The top 1 percent of tax filers would owe an additional $45,002.

Allowing the Bush-era capital gains rates to rise would also affect these high-income earners.

This article has been revised to reflect the following correction:

Correction: November 9, 2012

An earlier version of this article published online, and an accompanying headline, misstated the effective date of impending federal tax increases. While several tax cuts are set to expire Dec. 31, a couple of new taxes are scheduled to take effect Jan. 1, not before the start of the new year.

Article source: http://www.nytimes.com/2012/11/10/business/the-coming-tax-changes-for-individuals.html?partner=rss&emc=rss