It pays to be single -- that is, when it comes to high earners’ tax bills.
U.S. taxpayers with income of more than $200,000 a year will see federal tax rates rise this year on wages and investments. Tax increases will pinch married couples faster than individuals, especially if both spouses work and have capital gains and dividend income, said Joseph Perry, partner-in-charge of tax and business services at the accounting firm Marcum LLP.
In the law passed by Congress Jan. 1, multiple thresholds for higher rates kick in for married couples only $50,000 above where they hit for singles. Married taxpayers with income of at least $300,000 also face limits on the value of deductions and personal exemptions that were reinstated for 2013.
“If they’re sending a message, it’s not to be married,” Perry said of U.S. tax policy. “People who are married, working, earning two good salaries, are being penalized.”
The budget deal struck by Congress and new taxes stemming from the 2010 health-care law are exacerbating the long- established marriage penalty for high earners. The added bite will affect taxes they pay for 2013, and not the current filing season that starts this month.
Accountants and wealth advisers are recommending that high earners start planning and strategizing about how they recognize income from investments or when they take deductions.
Crossover Point
Three thresholds are now in effect at which higher taxes can affect top earners. Taxable income exceeding $450,000 a year for married couples and $400,000 for singles is the crossover point to the top income-tax bracket of 39.6 percent, from 35 percent, and the 20 percent rate for capital gains and dividends, compared with 15 percent.
The second threshold starts at adjusted gross income of more than $250,000 for married couples compared with $200,000 for individuals. Those are the markers for a new 3.8 percent surtax on investment income and a 0.9 percent added levy on wages starting this year. Both were enacted in 2010 to help finance the expansion of medical coverage.
Limits on the value of deductions and personal exemptions start at a third level: $300,000 a year for married couples and $250,000 for individuals.