Welcome to the New Post-"Bush Tax Cut" Era Tax Rates

A look at the new tax rates for 2013 and beyond.

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With passage of the fiscal cliff tax deal in early January, we finally know what the income tax rates for 2013 and future years will be. These are the rates you'll be paying on income you earn for the foreseeable future, or until Congress decides to change the rates again.

These new tax rates are "permanent"--meaning they are not scheduled to expire at a particular time in the future. This is in contrast to the Bush tax cut rates which were in effect from 2002-2012. This doesn't mean that Congress can't change the income tax rates at any time. However, the chances of this occurring any time soon are small.

2013 Tax Rates

As you doubtless know, the United States has a progressive income tax system for individual taxpayers with different tax rates (called tax brackets). The higher your income, the higher your tax rate. The chart below shows the tax brackets for 2013:

 

Single

Married, Filing Jointly

10%

Up to $8,925

Up to $17,850

15%

$8,926 to $36,250

$17,851 to $72,500

25%

$36,251 to $87,850

$72,501 to $146,400

28%

$87,851 to $183,250

$146,401 to $223,050

33%

$183,251 to $398,350

$223,051 to $398,350

35%

$398,350 to $400,000

$398,351 to $450,000

39.6%

All over $400,000

All over $450,000

As you can see from the above chart, the United States now has seven tax brackets, ranging from 10% to 39.6%.

Note, however, that these are marginal tax rates. This means that you do not owe the top rate on all of your taxable income. You move from one bracket to the next only when your taxable income exceeds the bracket amount. For example, if you are a single taxpayer, you pay 10% income tax on all your taxable income up to $8,950 in 2013. If your taxable income exceeds that amount, the next tax rate (15%) applies to all your income over $8,950—but the 10% rate still applies to the first $8,950. If your income exceeds the 15% bracket amount, the next tax rate (25%) applies to the excess amount, and so on until the top bracket of 39.6% is reached. For example, a single taxpayer with taxable income of $100,000 would pay a 10% tax on his income up to $8,950, 15% on his next $27,325 in income, 25% on the next $51,000, and 28% on the remaining 12,150 of his total $100,000 income. The total tax would be $21,293.

These 2013 rates are a minor change from the tax brackets in effect from 2002-2012. In those good old days, there were only six brackets, with a top rate of 35%. The 2012 rates are shown in the following chart:

2012 Income Tax Rates

 

Single

Married, Filing Jointly

10%

Up to $8,950

Up to $17,900

15%

$8,951 to $36,250

$17,901 to $72,500

25%

$36,251 to $87,850

$72,501 to $146,400

28%

$87,851 to $183,250

$146,401 to $223,050

33%

$183,251 to $398,350

$222,051 to 398,350

35%

All over $398,350

Al over $398,350

 

You have to have a very large income to reach the new 39.6% top bracket: over $400,000 for singles and $450, 000 for married filing jointly. Less than 1% of all taxpayers have incomes this high. Thus, for the vast majority of taxpayers, there will be no increase in income taxes under the new tax rates that went into effect on January 1, 2013 as part of the American Taxpayer Relief Act.

 January 2013

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