As a service to our subscribers, CCH Tax & Accounting has prepared projected inflation-adjusted tax bracket numbers for the 2013 Tax Rate Schedules, the standard deduction, personal exemption, and other tax amounts for use in year-end and 2013 tax planning. The projected figures are based on the inflation-adjustment provisions of the Internal Revenue Code (IRC) as currently in force and the average of the Consumer Price Index for All Urban Consumers (CPI-U) published by the Department of Labor for each month in the 12-month period ending on August 31, 2012. Official IRS figures will not be released until later in 2012. The rate of inflation as measured for tax purposes increased approximately 2.5 percent based upon CPI-Us used to compute 2012 amounts.
Certain Washington observers forecast that Congress will ultimately extend the lower and mid-range rates into 2013 but that the rates for higher income taxpayers may rise. GOP nominee for president Mitt Romney has endorsed a full extension of the current rates into 2013 (TAXDAY, 2012/09/12, M.1 ); President Obama has called for a rate increase to 36 percent and 39.6 percent for “higher income” taxpayers defined as those above certain adjusted gross income (AGI) levels: $200,000 for single filers, $250,000 for joint filers, $225,000 for heads of households, and $125,000 for married individuals filing separately. The administration’s fiscal year (FY) 2013 budget calls for adjusting those higher income amounts for inflation after 2009 (TAXDAY, 2012/02/14, T.2 ), which CCH projects to be $213,200, $266,500, $239,850, and $133,250 AGI amounts, respectively, for 2013. Both candidates support other Bush-era extensions, such as the end of the marriage penalty in connection with rate brackets and the standard deduction. Certain members of Congress would support an extension of all tax rates, except for those with incomes above $1 million (TAXDAY, 2012/06/20, C.2 ).
The CCH projections that follow for each taxpayer filing type are made with the assumption that Congress ultimately will extend all Bush-era tax rates and other benefits for at least one more year, through 2013. Rate brackets for a full sunset of Bush-era tax cuts from these projections generally may be determined by treating:
—the existing 10 percent bracket as projected for 2013 as the lower part of the 15-percent bracket;
—the taxable income range of the existing 25-percent bracket as projected for 2013 as the range of the pre-Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16 ) 28-percent bracket;
—the taxable income range of the existing 28-percent bracket as projected for 2013 as the range of the pre-EGTRRA 31-percent bracket;
—the taxable income range of the existing 33-percent bracket as projected for 2013 as the range of the pre-EGTRRA 36-percent bracket; and
—the taxable income range of the existing 35-percent bracket as projected for 2013 as the range of the pre-EGTRRA 39.6-percent bracket.
An exception exists for determining the pre-EGTRRA bracket amounts for married individuals filing jointly to the extent the marriage penalty relief provisions in EGTRRA would not be extended. For married individuals either filing jointly or separately, their 15-percent bracket under an EGTRRA sunset no longer would end at double the bracket amount of unmarried individuals. Projected for 2013 the top of the 15-percent bracket for joint filers, for example, would decrease to $60,550 from $72,500 under a full EGTRRA sunset.
Tax Bracket Rates with Full EGTRRA Extension
Joint returns. For married taxpayers filing jointly and surviving spouses, the maximum taxable income subject to the 10-percent bracket will rise from $17,400 in 2012, to $17,850 in 2013; the top of the 15-percent tax bracket will increase from $70,700 to $72,500. The bracket amounts for the remaining tax rates will show similarly proportionate increases: $146,400 as the maximum for the 25-percent bracket (up $3,700 from 2012); $223,050 for the 28-percent bracket (up $5,600 from 2012); and $398,350 for the 33-percent bracket (up $10,000 from 2012). Amounts above the $398,350 level will be taxed at the 35-percent rate.
Unmarried filers. For single taxpayers, the maximum taxable income for the 10-percent bracket will increase to $8,925 for 2012 (up from $8,700 in 2012). The remainder of the rate brackets show inflation increases of: $900 for the top of the 15-percent bracket (to $36,250); $2,200 for the 25-percent bracket (to $87,850); $4,600 for the 28-percent bracket (to $183,250); and $10,000 for the top of the 33-percent bracket (to $398,350).
Married filing separately. Married taxpayers filing separately will see a $225 increase for the upper limit of the 10-percent bracket (to $8,925) and an $900 increase for the 15-percent bracket (to $36,250). The top of the 25-percent bracket will increase by $1,850 (to $73,200); the top of the 28-percent bracket will increase by $2,800 (to $111,525); and the top of the 33-percent bracket will increase by $5,000 (to $199,175).
Heads of household. For heads of households, the maximum taxable income for the 10-percent bracket will see a $350 increase from $12,400 in 2012 to $12,750 in 2013. The top of the remainder of the bracket amounts will increase as follows: up $1,250 from 2012 for the 15-percent bracket, to $48,600; up $3,150 from 2012 for the 25-percent bracket, to $125,450; up $5,100 from 2012 for the 28-percent bracket, to $203,150; and up $10,000 from 2012 for the top of the 33-percent bracket, to $398,350.
Estates and trusts. For estates and nongrantor trusts, there will be a slight increase in all the rate bracket amounts from 2012 levels as follows: up $50 from $2,400 in 2012 to $2,450 in 2013 for the 15-percent bracket; up $100 from 2012 to $5,700 in 2013 for the 25-percent bracket, up $250 from 2012 for the 28-percent bracket, to $8,750; and up $300 from 2012 for the 33-percent bracket, to $11,950.
The 2013 standard deduction will increase for all taxpayers. The standard deduction amounts for 2013 will be $6,100 for single taxpayers; $8,950 for heads of households; $12,200 for married taxpayers filing jointly and surviving spouses; and $6,100 for married taxpayers filing separately. The standard deduction for dependents rises $50 to $1,000 (or earned income plus $350). The additional standard deduction for those have reached 65 or are blind will rise to $1,200 for married taxpayers; $1,500 for unmarried individuals.
The amount of personal and dependency exemptions for 2013 will increase to $3,900 from the 2012 level of $3,800.
Gift Tax Exclusion
The gift tax annual exclusion, which rose from a base of $10,000 to $11,000 in 2002; $12,000 in 2006, and $13,000 in 2009, once again will rise in 2013 to $14,000. Pursuant to the IRC, the exemption can rise only when the inflation adjustment produces an increase of $1,000 or more.
Itemized Deductions/Personal Exemption Limitations
If EGTRRA is allowed to sunset, adjusted gross income (AGI) limitations on the value of certain itemized deductions as well as personal exemptions will return. Both limitations had been gradually phased out and were completely eliminated starting in 2010. Without further action by Congress, they return in full force starting in 2013. Projected for inflation, those 2013 AGI limitations for personal exemptions are $267,200-$389,700 for married filing joint returns, $222,700-$345,200 for heads of household, $178,150-$300,650 for single filers and $133,600-$194,850 for married filing separately. The itemized deduction phaseout for 2013 would be triggered at $89,075 AGI for married filing separately and $178,150 for others.
Other Tax Figures
In addition to the projected tax figures for 2013 listed above, the IRC requires dozens of other inflation adjustments for 2013, including:
Roth IRAs. The AGI limits for maximum Roth IRA contributions in 2013 will be: married filing jointly, $178,000; the AGI limit for other filing statuses, other than married filing jointly or separately, will increase to $112,000 in 2013.
IRA contributions. The maximum on the base IRA contribution amount, which is subject to indexing, will increase by $500 to $5,500 for 2013.
Education savings bond interest exclusion. When U.S. savings bonds are redeemed to pay expenses for higher education, the interest may be excluded from income if the taxpayer’s income is below a certain range. For 2013, that phase-out range for singles will be $74,700-$89,700 and for joint filers, $112,050-$142,050.
Student loan interest income phaseout. The $2,500 student loan interest deduction phaseout range will remain at $60,000-$75,000 AGI for singles, and $125,000-$155,000 for joint filers in 2013.
Adoption expense credit. For 2013, assuming EGTRRA extension, the adoption credit limit amount will be $12,770, with the AGI phaseout beginning at $191,530 (up $1,820 from 2012).
Medical savings accounts. The minimum-maximum range for MSAs in 2013 will be $2,150-$3,200, with a $4,300 maximum out-of-pocket for single plans and $4,300-$6,450, with $7,850 out-of-pocket for family plans.
Long-term care insurance. The per diem exclusion for long-term care insurance proceeds for 2013 will be $320 per day, up $10 from 2012. The dollar level of long-care premiums deductible as health insurance premiums will range from $360 for those 40 years or younger to $4,550 for those over 70 years of age.
Gifts to noncitizen spouses. The first $143,000 of gifts in 2013 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $4,000 from 2012.
Foreign gifts. A U.S. person receiving aggregate foreign gifts exceeding $15,102 in 2013 will be required to file an information return.
Foreign earned income/housing. The amount of the foreign earned income exclusion under Code Sec. 911 for 2013 will be $97,600. The foreign earned income housing deduction for 2013 will be set at $29,280.
By George Jones, CCH News Staff