Individual Tax Rates Will Increase As "Bush tax cuts" Expire

Unless legislation is passed within the next few months, the "Bush tax cuts" will expire at the end of 2012, and the individual tax rates will increase across the board for 2013 as follows:As you can observe from the table above, all taxpayers will experience an increase in their effective federal tax rates, not just higher income individuals.

• Lower income taxpayers’ ordinary federal rates will increase 50% from 10% to 15%, and those in the highest tax bracket could see an ordinary tax rate increase from 35% to 39.6%.
• Taxpayers in the lower income tax brackets have not paid taxes on their long term capital gains over the past several years, but starting in 2013 their rates will increase to either 10 or 20%. Taxpayers in the remaining tax brackets will see a 33.3% increase in their long term capital gains tax rates starting in 2013.
• Qualified dividends will no longer receive a preferential reduced tax rate and will be taxed at ordinary income tax rates.

Many of the higher income taxpayers will also be subject to the additional Medicare surtax of 3.8% on their investment income (capital gains, dividends, and other investment related income types) effectively increasing their ordinary income tax rate to 43.4% and long term capital gain rate to 23.8%. The tax experts at Cover & Rossiter expect that legislation will be enacted to prevent or diminish the impact of these changes; however, we do not expect such legislation to be passed until after the elections. In addition, the proposals currently being presented may only diminish the impact for taxpayers whose income is less than $250,000. If you have any questions or would like more information, please contact Diane Burke at (302) 656-6632.

Cover & Rossiter will be holding seminars at both our Wilmington and Middletown offices to discuss these changes and offer strategies for being proactive in 2012. The dates of these seminars are as follows:

Wilmington office: September 25th 8:00 AM

October 23rd 5:30 PM

Middletown office: October 2nd 5:30 PM

To register for a seminar click here or call 302.691.2224.