Congress passed and the President signed American Taxpayer Relief Act of 2012. This new law extended many expiring tax cuts and created a new tax bracket for higher income taxpayers. Here are the new tax brackets for 2013:
Single
| 2012 | 2013 | |
| Standard Deduction | $5,950 | $6,100 |
| Personal Exemption | $3,800 | $3,900 |
| 10% | $8,700 | $8,925 |
| 15% | $35,350 | $36,250 |
| 25% | $85,650 | $87,850 |
| 28% | $178,650 | $183,250 |
| 33% | $388,350 | $398,350 |
| 35% | infinity | $400,000 |
| 39.6% | N/A | infinity |
Married Filing Jointly
| 2012 | 2013 | |
| Standard Deduction | $11,900 | $12,200 |
| Personal Exemption | $3,800 | $3,900 |
| 10% | $17,400 | $17,850 |
| 15% | $70,700 | $72,500 |
| 25% | $142,700 | $146,400 |
| 28% | $217,450 | $223,050 |
| 33% | $388,350 | $398,350 |
| 35% | infinity | $450,000 |
| 39.6% | N/A | infinity |
How Tax Brackets Adjust With Inflation
How did I estimate the tax bracket numbers, you might ask?
Tax brackets are adjusted to inflation. Each year in the fall, the IRS calculates the tax brackets for next year using consumer price index (CPI) numbers between September of the previous year and August of the current year. For example, when the IRS calculated 2012 tax brackets in fall 2011, they calculated the average CPI between September 2010 and August 2011 and then compared it with the average CPI in a base year.
For 2013 tax brackets, I compared the average CPI between September 2011 and August 2012 with the average CPI in the base year.
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KD says
TFB, thanks for the analysis. Yes, the net effect may be small for the larger population. But take into account the gift of 2% less Social Security contribution going away, the capital gains moving from 15% to 20%, dividends getting taxed as income. Add on the spending cuts. This all adds up a quite a shock for the fragile recovering economy. I hope better senses prevail.
Harry Sit says
The 2% reduction in Social Security tax is a temporary stimulus. Nobody is arguing for extending it. The larger population doesn’t get much in dividends or capital gains when they don’t even fill up their tax deferred accounts. The spending cuts are self-inflicted. They can go away when there is a long term plan for the deficits.
Mia says
August CPI is already posted, is it possible to update numbers in your tables?
That is very useful article, really appreciate insight.
Harry says
I updated the numbers. The previous estimates were off by about 0.1%.
Chucks says
Wait, what about the rates themselves? Those will definitely be different based on whether they expire or are extended.
Harry says
Maybe the table aren’t clear or you didn’t read closely? The rates are in the tables.
mike miller says
What will the qualified dividend rate be on someone who makes less than $70,000. Will it continue to be 0%.
Harry says
Unfortunately nobody knows. I would say no.
mike miller says
If they extend the tax rates for people under 250k as both sides want to do, that means only the rates?