10/4/2012 4:15 PM ET|
5 key money changes for 2013
Now's the time to get your financial house in order to accommodate the end of a temporary payroll tax cut, new health care rules and more.
Potentially painful changes in federal tax and benefit rules are scheduled to take place at the beginning of next year. Taxpayers of all stripes stand to be affected, and the window for 2013 planning is closing fast. So it's time to think about your financial plans for next year.
The fiscal cliff
Bush-era tax cuts are set to expire at the end of this year. Most of the attention regarding these cuts has involved wealthy taxpayers, but all taxpayers would see higher taxes. At the bottom end of the brackets, the lowest rate of 10% would disappear altogether, and the new bottom bracket would be 15%.
People in the 25%, 28% and 33% brackets would all see their top marginal tax rates boosted by 3 percentage points, to 28%, 31% and 36%. And the top tax bracket of 35% would be replaced by a 39.6% bracket.
These tax cuts are the biggest component of the "cliff" but hardly the only one. Automatic federal spending cuts of about $100 billion a year are set to begin as well. Also, Social Security payroll taxes have been reduced for the past two years to help the economic recovery. These cuts -- from 6.2% to 4.2% of covered wages -- are also set to expire, as are extended jobless benefits.
Estate and gift taxes
Wealthy folks can pass on estates of up to $5.12 million but, of course, they have to die to "enjoy" this benefit. Less painful is the fact that this ceiling also applies to a person's lifetime exemption from gift taxes (and this exemption excludes the $13,000 gift exemption allowed for individual gifts each year to as many recipients as you choose). The estate and gift exemptions are set to drop next year to $1 million, and the tax rate on transfers above the exemption ceilings would rise to 55% from 35%.
Health care reform changes
A trio of significant tax changes is set to take effect next year, and thus would be reflected in tax returns due in April 2014. Individuals making more than $200,000 in wage income next year ($250,000 for couples) would see their Medicare payroll tax on amounts above these levels rise to 2.35% from 1.45%. They would also pay a 3.8% tax on net investment income. Lastly, taxpayers who itemize their returns would be able to deduct only those unreimbursed medical expenses that exceed 10% of their taxable incomes, up from 7.5% now. This higher threshold will not apply to taxpayers 65 and older until 2017.
The enrollment period for 2013 Medicare coverage extends from Oct. 15 to Dec. 7. Health care reform has triggered major changes in Medicare Advantage and prescription drug plans. Don't assume you should keep your current plan, even if it was the best one for you this year. Look carefully at competing plans. Find out more on the Medicare website, which was recently revamped to make it more helpful and easier to use.
The annual cost of living adjustment, or COLA, for 2013 is expected to be announced in late October. The COLA went up 3.6% in 2012, its first rise in three years. Low rates of general inflation in the past year suggest that next year's COLA will not be so generous. In any event, the COLA announcement is linked with 2013 changes in Medicare premiums. Look out for these announcements and use them to plan your 2013 spending and expense budgets.
More from U.S. News & World Report:
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The Democrooks and Republicons will keep spending recklessly until your tax rate is 110%. They aren't the cure; THEY are the problem. Write in anyone you know who can balance his checkbook; they will do a better job running the country without a doubt.
It is amazing how out of touch so many people are. Lower middle class households make what, $25K ~ $35K or so? If they were to work full time from 18 to 65, had NO deductions or bills of any kind what so ever and saved each and every cent they ever earned (given they started on day one at $25K~$35K), it would only amount to $1.1M ~ $1.6M total lifetime gross pay. Math, and a grasp of how the majority of people in the USA live are definitely not many American's strong suits.
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