Fiscal Cliff and Potential 2013 Tax Changes

Charles Schwab;

   Key Points:

• Barring Congressional agreement, a wide range of tax rates should increase in 2013.
• New Medicare taxes on net investment income and wages will impact high earners in 2013, regardless of a fiscal cliff agreement.
• Do the math before you sell off securities to lock in current tax rates.

"Both parties in Congress support some form of extension of current rates. Most Democrats want a temporary extension, and only for certain taxpayers, while most Republicans support making current rates permanent for everyone across the board. When or if either of those plans gets enacted will depend a lot on who controls Congress and the presidency after the fall election—but the new Congress won't be sworn in until January 3, 2013, so it will be up to our current elected leaders to either take action before then or kick the can into next year. What, if anything, should the average investor do to prepare?"

 

Read the charts and tables here. 
 
Health Care Taxes

cartoonaday.com

"The new health care law imposes a number of new taxes on individuals, employers, and insurance companies. Here are some of the more noteworthy changes for individual taxpayers.

In 2013:

"Increased Medicare tax. An additional 0.9% Medicare tax will be added to earned income over $200,000 for single filers and over $250,000 for married couples filing jointly.

Surtax on unearned income. A 3.8% surtax will be imposed on net investment income for high earners.

Modified threshold for claiming medical expense deductions. The adjusted gross income (AGI) threshold for claiming an itemized deduction for medical expenses will rise from 7.5% to 10%. However, the 7.5% threshold will continue to apply through 2016 to individuals age 65 and older (and their spouses).

$2,500 limit on Health Care FSA contributions. The new law limits contributions to health care flexible spending accounts (HCFSAs) to $2,500 per year. The dollar amount would be inflation-indexed after 2013."

In 2014:
"Penalty for failing to have insurance. The penalty for people who choose to remain uninsured starts at $95 in 2014 and eventually increases to $695 in 2016 (or 2.5% of income, whichever is greater). The penalty for failure to insure would be indexed to inflation, and subsidies will be made available for those who can't afford it. "

Daniel J. Mitchell

By Rande Spiegelman; CPA, CFP®, Vice President of Financial Planning, Schwab Center for Financial Research. Read the disclosures at the bottom of the page linked .