Your Official 2013 Federal Income Tax Brackets

2013 Federal Income Tax BracketsIt’s finally official!  After too much debate, the House vote showed up fashionably late.  The 2013 federal income tax brackets were finalized on the first day of the new year.

So what does this mean for everyone?  The tax brackets will be unchanged for all but the top income earners.  Even more important, though, these tax cuts are permanent.  Or the tax cuts are permanent in the sense that they won’t expire.  Congress can still change the tax law if they can agree on something.  So, at least we won’t have to relive the fiscal cliff again next year.

With the signing of the American Taxpayer Relief Act, Congress made several changes to the tax law which is covered here.  The first of which were the 2013 income tax brackets.

These tax tables are for the 2013 tax year, with taxes due in April 2014.  Use the 2012 tax brackets for tax returns due in April 2013.

I recommend Turbotax or H&R Block tax software.  It’s an easy way to estimate, prepare, and eFile your taxes every year.

2013 Federal Income Tax Brackets

Thanks to Congress’ late action, the 2013 tax brackets will be very similar to the 2012 tax tables after adjusting for inflation.  The one exception, of course, was the hotly debated top income bracket.  In the end, a new 39.6% tax bracket was added for incomes over $400,000 for single filers and $450,000 for those married.  You can find all the tables below:

Single Tax Brackets

Taxable Income Tax Rate The Tax Is:
$0 – $8,925 10% 10% of the amount over $0
$8,925 – $36,250 15% $893 plus 15% of the amount over $8,925
$36,250 – $87,850 25% $4,991 plus 25% of the amount over $36,250
$87,850 – $183,250 28% $17,891 plus 28% of the amount over $87,850
$183,250 – $398,350 33% $44,603 plus 33% of the amount over $183,250
$398,350 – $400,000 35% $115,586 plus 35% of the amount over $398,350
Over $400,000 39.6% $116,164 plus 39.6% of the amount over $400,000

Married, Filing Jointly Tax Brackets

Taxable Income Tax Rate The Tax Is:
$0 – $17,850 10%  10% of the amount over $0
$17,850 – $72,500 15%  $1,785 plus 15% of the amount over $17,850
$72,500 – $146,400 25%  $9,983 plus 25% of the amount over $72,500
$146,400 – $223,050 28%  $28,458 plus 28% of the amount over $146,400
$223,050 – $398,350 33%  $49,920 plus 33% of the amount over $223,050
$398,350 – $450,000 35%  $107,768 plus 35% of the amount over $398,350
Over $450,000 39.6%  $125,846 plus 39.6% of the amount over $450,000

Head of Household Tax Brackets

Taxable Income Tax Rate The Tax Is:
$0 – $12,750 10%  10% of the amount over $0
$12,750 – $48,600 15%  $1,275 plus 15% of the amount over $12,750
$48,600 – $125,450 25%  $6,653 plus 25% of the amount over $48,600
$125,450 – $203,150 28%  $25,865 plus 28% of the amount over $125,450
$203,150 – $398,350 33%  $47,621 plus 33% of the amount over $203,150
$398,350 – $425,000 35%  $112,037 plus 35% of the amount over $398,350
Over $425,000 39.6%  $121,395 plus 39.6% of the amount over $425,000

Married, Filing Separately Tax Brackets

Taxable Income Tax Rate The Tax Is:
$0 – $8,925 10%  10% of the amount over $0
$8,925 – $36,250 15%  $893 plus 15% of the amount over $8,250
$36,250 – $73,200 25%  $4,991 plus 25% of the amount over $36,250
$73,200 – $111,525 28%  $14,229 plus 28% of the amount over $73,200
$111,525 – $199,175 33%  $24,960 plus 33% of the amount over $111,525
$199,175 – $225,000 35%  $53,884 plus 35% of the amount over $199,175
Over $225,000 39.6%  $62,923 plus 39.6% of the amount over $225,000

2013 Standard Deduction

The 2013 standard deductions were based off the 2012 numbers and adjusted for inflation.

Filing Status Standard Deduction
Single  $6,100
Married, Filing Jointly  $12,200
Head of Household  $8,950
Married, Filing Separately  $6,100

2013 Dividend And Capital Gains Tax Rates

This also means the dividend and capital gains tax will be unchanged for all but the highest tax bracket.  Both will top out at 20%.  In the end, both tax rates will correspond to your marginal tax bracket.

Tax Rate Long Term Capital Gains Tax Qualified Dividend Tax
10% 0% 0%
15% 0% 0%
25% 15% 15%
28% 15% 15%
33% 15% 15%
35% 15% 15%
39.6% 20% 20%

This does not include the 3.8% Medicare Surtax added this year by the Affordable Care Act.  We’ll have more on this later.  To simplify it, the tax is dependent on the lesser of your net investment income or your MAGI minus $200,000 for single filers, $250,000 for married filing jointly.  Basically, you won’t be taxed if your MAGI is less than that amount.

Other Tax Changes

Several other changes were made despite the opposition.  The first was largely expected – the end of the payroll tax holiday.  This was viewed as a temporary tax cut to help boost the economy.  Regardless, you can expect to see the old 6.2% Social Security contributions taken out of your paychecks again.

Alternative Minimum Tax

The tax bill sets the Alternative Minimum Tax (AMT) exemption at $51,900 for single filers and $80,800 for married, filing jointly filers in 2013.  This has been an annual patch by Congress.  With this tax bill the patch effectively becomes permanent.  In doing so, the AMT will be adjusted for inflation each year.

Estate Taxes

One big change came by way of estate and gift tax exemptions with an increased maximum tax rate from 35% to 40% on amounts over $5,000,000.  In addition, the new exemption amount will adjust for inflation each year.  So, the 2013 estate and gift tax exemption will set at $5,250,000 after adjusting for inflation.

401k to Roth 401k Conversions

You can view this as an effort to increase tax revenue now.  The Act allows for 401k to Roth 401k conversions.  The conversions aren’t age or employment dependent anymore.  Which would allow you to take advantage of tax-free income in retirement in exchange for an immediate tax charge on the amount of the conversion.  This comes with a warning – it can’t be reversed.

The old rules only allowed the conversion under specific circumstances like disability, retirement or leave your job.  Still, your employer must offer a Roth 401k that allows conversions.  Alternatively, a conversion may not be the best option for you.

And The Pork

Politicians have an uncanny ability to slide pork projects into bills.  Losing that ability is a big reason true tax reform will never happen.  Thankfully, this bill was no different.  On top of all the major tax changes, a few special situations were added to say thanks to local constituents.

The more interesting were: write-offs for “Motorsports complexes” i.e. Nascar racetracks, tax breaks for TV and movie producers that shoot inside the U.S. and tax breaks for asparagus farmers.  Thankfully, we will continue to watch Nascar races filmed in the U.S. this year.

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Comments

  1. Tom says

    I get a different results using the adjustment method you described:

    Aug ’11 – Sep ’12 inflation => (230.379-226.889)/226.889 = 0.015381970919700737

    2012 Single Bracket = 8,700
    2013 Single Bracket = 2012_Single * (1 + inflation) = 8833.823147001396
    Rounded to the 25th => 8,825 whereas you have 8,950

    Same for all the other values in your tables. What am I doing wrong?

    • J.P. says

      Tom, your math is right. However, the IRS’s formula is a bit more complicated. It’s built around a base year and the ratio of the current year CPI-U to the base year CPI-U. The base year is just the year the brackets went into law (though there are exceptions). So you wouldn’t use the current year brackets in the formula unless it was also the base year. The CPI-U is the average CPI-U from the 12 month period (Sept. to Aug.) of each year.

      That said, the IRS’s formula looks something like this:

      New brackets = Base year(CPI-U current year/CPI-U base year)

      Then rounded down to the nearest $50 increment.