When taxpayer's see their 2013 Form 1040, they will notice a few changes to the taxes and rates from previous years. Following is a summary of the major tax rates and taxes that will be applicable for 2013. For the purposes of this article, MFJ = married filing jointly, S = single, O = any other filing status.
Regular tax rates
Here are the tax brackets for 2013:
| Tax rate | Single filers | Married filing jointly or qualifying widow/widower | Married filing separately | Head of household |
| 10% | Up to $8,925 | Up to $17,850 | Up to $8,925 | Up to $12,750 |
| 15% | $8,926 - $36,250 | $17,851 - $72,500 | $8,926- $36,250 | $12,751 - $48,600 |
| 25% | $36,251 - $87,850 | $72,501 - $146,400 | $36,251 - $73,200 | $48,601 - $125,450 |
| 28% | $87,851 - $183,250 | $146,401 - $223,050 | $73,201 - $111,525 | $125,451 - $203,150 |
| 33% | $183,251 - $398,350 | $223,051 - $398,350 | $111,526 - $199,175 | $203,151 - $398,350 |
| 35% | $398,351 - $400,000 | $398,351 - $450,000 | $199,176 - $225,000 | $398,351 - $425,000 |
| 39.60% | $400,001 or more | $450,001 or more | $225,001 or more | $425,001 or more |
When calculating tax using this table, taxpayers must work "up the ladder". This means if a MFJ taxpayer has taxable income of $100,000, they will pay tax at 10% on the first $17,850, then tax at 15% on the amount between $17,851 and $72,500, and then tax at 25% on the remaining amount. As far as water cooler conversation goes, this taxpayer is "in the 25% bracket", but that doesn't mean they pay a flat 25% on $100,000.
3.8% Medicare surtax
Taxpayers with modified adjusted gross income in excess of $250,000 MFJ / $200,000 S might find themselves completing Form 8960 with their 2013 income tax return. Taxpayers with this level of income potentially will be subject to the 3.8% Medicare surtax on their net investment income. Net investment income is loosely defined as all taxable interest, dividends, capital gains, rental/royalty income, and other business activities that are considered passive. The 3.8% tax is calculated on Form 8960 and added to the taxpayer's regular tax. For example, MFJ couple has $300,000 modified adjusted gross income that includes $1,000 of taxable dividends. The couple will pay an additional 3.8% tax on the dividends. The IRS has recently issued final regs on what is subject to the Medicare surtax.
Higher capital gains rates
Taxpayers with modified adjusted gross income of $400,000 S / $450,000 MFJ will see their long-term capital gains taxed at 20% instead of the 15% rate from the past several years. This applies to both long-term capital gains and qualified dividends, but short-term capital gains will still be taxed at regular rates.
Personal exemption (PEP) and itemized deduction (Pease) phaseout
Once taxpayers reach a certain level of income, they can potentially be subject to a phaseout of allowable personal exemptions and itemized deductions, which has been discussed in a previous post.
As can be seen, there are several changes to individual tax rates, deductions, and exemptions for 2013. With proper planning, some of these issues can be either minimized or avoided altogether.