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How tax policy changes can affect your 2013 tax return

A simple run-down of what tax changes are in store for 2013 and who will be affected

Brandon Lafving
by Brandon Lafving, Dimespring Contributor (@TechDragoon)

Financial pressure in Congress has caused substantial changes in federal taxation. Here is a list of those changes, sectioned off by who the changes will most likely affect.

Everyone

Medical and dental expenses: You can only deduct medical and dental expenses that exceed 10 percent of your adjusted gross income, or 7.5 percent if you are 65 or over.

READ: The IRS owes you money - and you don't even know it

Standard mileage rates on business use, medical care use, and moving: Rate of remuneration for using your vehicle for business increased to $0.565 per mile. Medical care  $0.24; Moving expense: $0.14

Adoption credit or exclusion: The maximum adoption credit or exclusion for employer-provided adoption benefits is increased to $12,970 for taxpayers with modified adjusted gross income under $234,580

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Increase in employee’s share of payroll tax: Employees tax withholdings for social security will increase from 4.2 percent to 6.2 percent up to the social security wage limit of $113,700. Self-employed taxpayers will be subject to the same increase, from 10.4 percent to 12.4 percent. The deduction for self-employment tax has been restored to 50 percent.

The Good News (mostly for lower income taxpayers):

Earned income tax credit (EITC): The earned income tax credit (EITC) has been extended to include 2013. 

Alternative minimum tax (AMT): Exemption amount increased to $51,900 ($80,800 if married filing jointly, widower, or $40,400 if married filing separately. If exempt, you need not pay the Alternate Minimum Tax (AMT).

Lifetime learning credit income limits: To qualify for a lifetime learning credit, modified adjusted gross income must be less than $63,000 or $127,000 if married filing jointly

Retirement savings contribution credit income limits increased: Claiming this credit is only available to individuals with modified adjusted gross income less than $29,500, married filing jointly $59,000, or head of household $44,250

READ: What tax evasion will cost you

In the Middle

Foreign earned income exclusion: Max exclusion has increased to $97,600

Income limits for excluding education savings bond interest increased: Excluding interest is now only possible if your modified adjusted gross income is less than $87,700 or $142,050 if married filing jointly.

Personal exemption: Personal exemption is increased to $3,900 for taxpayers with AGI less than $250,000 if single, $150,000 if married filing singly, $275,000 if head of household, and $300,000 if married filing jointly.

Itemized deductions: taxpayers with AGIs over $300,000 are limited in itemized deductions to $275,000 if head of household, $250,000 if single, and $150,000 if married filing separately may be reduced.

High Income taxpayers

Additional Medicare Tax: Depending on your income level and tax filing status, you could be responsible for an additional .9 percent tax for Medicare.

READ: Find out if your employer tuition assistance qualifies as a tax exemption

The income thresholds are printed below:

   Married filing jointly

$250,000

   Married filing separately

$125,000

   Single

$200,000

   Head of household

$200,000

   Qualifying Widow(er)

$200,000

 

Net Investment Income Tax: An additional Net Investment Income Tax (NIIT) of 3.8 percent could be levied on the lesser of either: 1) net investment income; or 2) the excess of your modified adjusted gross income.
 

 

Brandon D. Lafving is an independent writer with an interest in financial systems. A graduate of Princeton University, Brandon has published journalism in The Philadelphia Inquirer, Metro, and WXPN. He also consults, researches and writes reports for small and mid-size businesses.