Tax Changes to Expect in 2013

/ BY / Personal Finance

You may remember that Congress and President Obama worked to the last minute to prevent the Fiscal Cliff from occurring. We may not have gone over the Fiscal Cliff, but that doesn't mean you won't see a few changes when it comes to taxes (and your paychecks) this year.

Here's an idea of the tax changes you can expect in 2013:

Higher Social Security Taxes

If you’ve gotten your first paycheck of the year, you probably noticed it was a little smaller than your checks from last year. That's because income taxes jumped from 4.2% to 6.2%. In 2011 and 2012, Congress approved a temporary Social Security payroll cut to help boost the economy. This expired at the end of 2012 and was not renewed for 2013. For example, a person making $50,000 a year will pay an extra $1,000 a year in Social Security tax, or about $80 less a month.

Increased Top Bracket

If your income places you in the top income bracket ($450,000 for married couples or $400,000 for single filers, you will pay a 39.5% tax instead of the previous 35%.

Higher Standard Exemption and Personal Deductions

Everyone who files their taxes can claim at least one standard deduction. Previously, this was $5,950 ($11,900 for married couples). Starting in 2013, the deduction rose to $6,100 for single filers and $12,200 for married couples.

Additionally, the personal exemption also rose to $3,900 from $3,800. However, for those earning more than $150,000 ($300,000 for married couples), this exemption will be phased out.

Ways You Can Save

Even though you'll see a decrease in your paychecks, there are still plenty of ways you can save when you file your taxes. Here are a few deductions and credits you can take advantage of that didn’t expire:

  • Earned Income tax credit. This is a tax credit designed for people with low to moderate incomes who have qualifying children or meet other eligibility requirements. A full list of these requirements can be found on the IRS website. This credit can be up to $6,000.
  • Educator’s Expense deduction. Teachers who spend their own money on classroom supplies can deduct up to $250 on their taxes in 2013.
  • Education tax credits and deductions. If you’re working towards an undergrad or graduate degree, you can take advantage of the American Opportunity Education tax credit. This provides up to $2,500 back on higher education related expenses. Additionally, you can deduct between $2,000 and $4,000 of tuition costs under the Higher Education Tuition deduction, which was extended through 2013.
  • Energy Efficient Home Improvement credit. If you recently remodeled your home or replaced appliances, you may be eligible for a $500 tax credit. These apply to certain energy-efficient appliances and improvements.

When to File

Because of the delay in reaching a Fiscal Cliff deal, the 2013 tax season will open a little later than anticipated. The IRS will not accept returns until January 30th for the majority of tax payers instead of the scheduled January 22.

Some people will have to wait even longer to file so the IRS can update their forms. If you’re claiming the above-mentioned Energy-Efficiency tax credit or making standard business deductions, for example, you’ll have to wait until February or March to file. For a full list of forms that taxpayers must wait until February or March to file, visit www.IRS.gov.

While some of the tax changes for 2013 will cost you money, there are still plenty of ways to save. Working with a tax professional can help ensure you make the most of your tax return.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXpo.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.