Clarifying tax updates (and myths) from around the Internet grapevine.
We’re all in the business of information-wading. You may be a professional email speed-reader or Facebook news feed sifter. For us, it’s about battling wrong information aggregators and putting the right tax updates and finance information in front of our clients.
It’s not hard to find answers with the world at our fingertips in this digital age, but it doesn’t mean that those answers are always right. We’re jumpstarting 2015 with an Internet standoff. Here are the tallies.
Below is a series of “facts” circulating like bad chain mail around the Internet grapevine. We’ve deciphered each statement to give you an accurate account and perspective of each change and who it affects, and when.
“Top Medicare tax went from 1.45 percent to 2.35 percent”
Effective New Year’s Day 2013 and a result of the Affordable Care Act, this is true but only for those with an adjusted gross income (AGI) of over $200,000 filing singly, and an AGI over $250,000 filing jointly.
“Top income bracket rose from 35 percent to 39.6 percent”
The top income tax bracket increased from 35 percent to 39.6 percent effective January 1, 2013. Starting January 1, 2015, this was only true for single filers with an AGI over $413,201 and joint filers with an AGI over $464,850.
“Top Income payroll tax went from 37.4 percent to 52.2 percent”
Taking into consideration that Medicare payroll, Federal income taxes, and average state and local income taxes are being pooled here (and referred by most tax professionals as the marginal tax rate), the current top “income payroll tax” increased to about 42.5 percent effective January 1, 2013.
“Capital gains tax went from 15 percent to 28 percent”
The top capital gains tax rate, which applies to taxpayers in the top income tax bracket, increased to 20 percent effective January 1, 2013. There are few specific scenarios where capital gains may be taxed at a greater rate (for example, net capital gains from selling collectibles – like coins or art – are taxed at a maximum 28 percent rate).
The Affordable Care Act’s Medicare tax rate of 3.8 percent may be added, but only increases the top rate to 23.8 percent. For those taxpayers with modified adjusted gross income less than $250,000 filing jointly and $200,000 filing singly, the capital gain tax rate will remain at 15 percent.
“Dividends tax went from 15 percent to 39.6 percent”
Effective January 1, 2013, when Bush-era tax cuts did not expire as initially intended, the top qualified dividend rate rose only to 20 percent. This rate applies to taxpayers in the top income tax bracket ($413,201 AGI for single filers and $464,850 AGI for joint filers).
The Affordable Care Act’s Medicare tax rate of 3.8 percent also may be added. For those taxpayers with modified adjusted gross income less than $250,000 filing jointly and $200,000 filing singly, the dividend tax rate will remain at 15 percent.
“Estate tax went from 0 percent to 55 percent”
From Bush-era tax cuts, the estate tax rose from zero percent in 2010 to 35 percent in 2011 and 2012, and then to 40 percent in 2013 under the “fiscal cliff” bill, in effect and unchanged since January 1, 2013.
At Maddox Thomson, our goal is to continue to keep you informed and knowledgeable about your financial world. If you have any questions about facts and figures, our team is always here to help. Call (713) 783-4242 or email us at [email protected].