Uncle Sam loves a cheerful giver. And if you're cheerful enough to be an upper-incomer, he's going to love you more. You knew this was coming, and should have prepared accordingly.
The good news is that most individuals will pay the same federal income tax rates for 2013 that they did for 2012. The bad news is that upper-income earners are the exception.
The American Taxpayer Relief Act raised the 2013 maximum federal rate to 39.6% – up from 35%. That affects singles with more than $400,000 taxable income, married joint-filing couples with income above $450,000 and heads of households with income above $425,000.
The maximum rate on long-term capital gains and dividends for upper-incomers also jumped to 20% – up from 15%. But there's more.
New tax on capital gains
Don't breathe a sigh of relief just yet if you're under that $400,000 trigger. Those above the $200,000 level are vulnerable. Read on.
Upper-incomers will be socked with a new 3.8% Medicare contribution tax on all or part of net investment income. That includes long-term capital gains and dividends. So the actual rate on long-term gains and dividends is 23.8%.
This Net Investment Income Tax can also potentially hit other types of income too. This may be where farmers and landowners with natural gas leases are most vulnerable. The list includes:
* Short-term capital gains;
* Rental income;
* Income and gains from passive investments in partnerships, limited liability companies and S corporations;
* Gains from selling personal residences.
You'll be hit with the NIIT if your adjusted gross income exceeds $200,000 if you are unmarried or $250,000 if you are a married joint-filer. It's charged on the lesser of your net investment income or the amount by which your AGI exceeds the applicable threshold.