There are more changes in federal tax laws affecting filings for 2013 than anytime in recent memory.
But the good news for the average taxpayer is that changes affect only a small percentage of the population.
“The gist of it for most people is that a lot of the things that were in the Bush tax cuts that had been set to expire became permanent, but if you make less than $400,000, the world didn’t change that much,” said Jeff Breeden, a partner at Stewart, Archibald & Barney LLP, Southern Nevada’s largest business tax preparation firm.
Breeden estimates that about 5 percent of the population will have to worry about changes that occurred in 2013 on filings due April 15.
Here are some tax-change highlights:
• The “Pease limitations,” named for Rep. Donald Pease, reduce the benefit of miscellaneous itemized deductions — mortgage interest, charitable donations, local taxes, etc. The Bush tax cuts did away with those reductions, but they’re back for 2013. They affect filers with incomes of $150,000 if single, $300,000 if married.
• The top tax bracket — 39.6 percent — is back. That’s up from last year’s rate of 35 percent and affects couples making more than $390,050, or half that for married couples filing separately.
• A new net investment income tax of 3.8 percent on interest, dividends, income from rental properties and income from passive investments has taken effect. Individuals earning more than $200,000 or married couples making $250,000 would have to pay it on the lesser of a taxpayer’s modified adjusted gross income or the amount of net investment income earned. That means the maximum tax rate for some could rise to 43.4 percent.
• The Medicare tax went up by 0.9 percentage point on wages and self-employment income.
• The Social Security tax, which had been at 10.4 percent in 2011 and 2012, is back up to the previous rate of 12.4 percent. Wage earners should have seen those Medicare and Social Security deductions in their paychecks this year.
• The capital gains tax has a new top tier, 20 percent. There are now three tiers — 0 percent, 15 percent and 20 percent. Breeden pointed out that some capital gains are subject to the new net investment tax, so the top rate could be as high as 23.8 percent.
• Same-sex couples have varying rules to follow when filing federal tax returns. Nevada couples legally married in states that acknowledge same-sex unions must file as married couples, either jointly or as married individuals filing separately. Nevada’s law on civil unions does not consider those couples to be married so they must file separately.
• The Nevada sales tax deduction is still intact this year, but it’s scheduled to sunset next year unless lawmakers extend it. Federal tax laws enable filers to deduct state income tax payments from their federal taxes, but states that don’t have state income taxes, like Nevada, are allowed to deduct sales tax payments instead. Nevada taxpayers can tally the amount of sales tax they paid in 2013 or use a chart based on varying sales tax rates in different counties.
• The Affordable Care Act could affect individuals working for companies with fewer than 50 full-time-equivalent employees or large companies that fail to provide their employees health insurance. Individuals not covered by company coverage could face a fine of $95, $47.50 for their uninsured children, for not signing up for coverage through state or federal health insurance exchanges. The penalty will increase annually through 2016 when the amount would be the greater of 2.5 percent of a household’s annual income or $695.