More Taxes for the Rich from New Year

Last updated on December 10, 2021

Increase in income tax for the rich is not yet final, but starting next year the rich will be paying higher taxes, with or without the increase in income tax. They will see an increase in payroll taxes on wages, tax on investment income, which includes interest, capital gains and dividends. That is final because the Obama administration has given the nod.

January, 2013, will bring along answers to a lot of questions regarding taxes. Apart from the expiring of many huge tax breaks, the air is ripe with the talk of raising taxes on the affluent Americans. The decision to raise taxes on the rich has not yet been made, but starting Jan, 2013, most American taxpayers irrespective of their financial status will be paying more taxes. http://www.nytimes.com/2012/12/09/us/politics/new-taxes-to-take-effect-to-fund-health-care-law.html?_r=0 explains:

“Affluent people are much more likely than low-income people to have health insurance, and now they will, in effect, help pay for coverage for many lower-income families. Among the most affluent fifth of households, those affected will see tax increases averaging $6,000 next year, economists estimate.

To help finance Medicare, employees and employers each now pay a hospital insurance tax equal to 1.45 percent on all wages. Starting in January, the health care law will require workers to pay an additional tax equal to 0.9 percent of any wages over $200,000 for single taxpayers and $250,000 for married couples filing jointly.

The new taxes on wages and investment income are expected to raise $318 billion over 10 years, or about half of all the new revenue collected under the health care law.”

There are some surprises too. Those unmarried have an advantage this time. If a single woman and a single man earn $200,000, they would not owe additional Medicare payroll tax, but if married, they would owe $1,350 jointly. Medicare payroll is charged on the combined earnings of a married couple.

The new taxes will pose some problems for employers when calculating payroll taxes of employees. Along with the employers, the employees will also need to ensure they do not get into tax debt because of underpayment of taxes. Nytimes.com elucidates:

“Employers are required to withhold Social Security and Medicare payroll taxes from wages paid to employees. But employers do not necessarily know how much a worker’s spouse earns and may not withhold enough to cover a couple’s Medicare tax liability. Indeed, the new rules say employers may disregard a spouse’s earnings in calculating how much to withhold.

Workers may thus owe more than the amounts withheld by their employers and may have to make up the difference when they file tax returns in April 2014. If they expect to owe additional tax, the government says, they should make estimated tax payments, starting in April 2013, or ask their employers to increase the amount withheld from each paycheck.”

New tax rules mean taxpayers will need to make changes in their tax planning and look for ways to minimize taxes. After investment tax, which will hurt the wealthy, they are already looking for ways to shift their investment.