On January 11, 2013, the IRS announced annual inflation adjustments for the tax year 2013, including the tax rate schedules, and other tax changes from the recently passed American Taxpayer Relief Act of 2012.
Changes in Tax Brackets; Adjustment to Standard Deduction and Personal Exemption
Starting tax year 2013, a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — remain the same as in prior years, though the taxable income thresholds for each of the marginal rate have changed (see this article).
For the tax year 2013, the standard deduction increased to $6,100 for individuals and $12,200 for married couples filing jointly. This is up from the 2012 numbers of $5,950 for individuals and $11,900 for married couples filing jointly.
Note that the American Taxpayer Relief Act of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).
For the tax 2013, the personal exemption rose to $3,900, up from the 2012 exemption of $3,800. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly.)
Alternative Minimum Tax Changes
The Alternative Minimum Tax (“AMT”) exemption amount for tax year 2013 is $51,900 ($80,800 for married couples filing jointly as set by the American Taxpayer Relief Act of 2012. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
One of the most important changes introduced by the American Taxpayer Relief Act of 2012 was the permanent “fix” of the AMT by indexing future exemption amounts for inflation.
Earned Income Tax Credit
For the year 2013, the maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly with 3 or more qualifying children, up from a total of $5,891 for tax year 2012.
Other Inflation Adjustments
There are a number of other inflation adjustments published by the IRS. This essay merely attempts to clarify those which are most common. More details are contained in IRS Revenue Ruling 2013-15.