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Net Investment Income Tax

Net Investment Income Tax

High-income taxpayers could see their tax burdens rise beginning in 2013 due to the Net Investment Income Tax.  Here are some possible explanations:

Increased top marginal tax rate.  For 2013, the highest marginal tax rate increased back to 39.6%.  This applies to taxable income above $400,000 (single filers) and above $450,000 (joint filers).   That’s up from 35%.  The taxable income level at which the 39.6% rate kicks in is indexed to inflation in future years.

Higher rate on investment income.  The tax rate on long-term capital gains and qualified dividends increase to 20% for taxpayers in the top bracket.  Most other taxpayers pay 15% tax rate on this investment income.

Phase out of itemized deductions.  Higher-income taxpayers also face a potential phase out of itemized deductions and personal exemptions as their adjusted gross income (AGI) rises above $250,000 for singles or $300,000 for married couples.

Medicare surtax on net investment income.  Under the Affordable Care Act, this 3.8% tax on net investment income kicks in when a taxpayer’s modified AGI exceeds certain threshholds.  The 3.8% surtax applies to the net investment income of singles when modified adjusted gross income exceeds $200,000 and to the net investment income of married couples when modified adjusted gross income exceeds $250,000 if filing jointly (applies to married couples filing separately who individually earn more than $125,000).  Investment income includes interest, dividends, royalties, rents, capital gains and passive activity income.

Additional Medicare tax of 0.9%  Additional Medicare tax of 0.9% on income from wages and self-employment for single taxpayers earning more than $200,000 and joint taxpayers earning more than $250,000.

 

Illinois State Income Tax

Illinois State Income Tax

The Illinois state income tax is back up, it’s just a matter of when and how much it will rise.  Will Illinois implement a progressive state income tax like California?  Maybe so if Illinois House Speaker Michael Madigan has his way.  According to Crain’s Chicago Business, House Speaker Madigan plans to introduce legislation calling for a vote in November on a constitutional amendment to allow a progressive state income tax in Illinois.  Specifically, Madigan proposed a 3 percent surcharge on individual income above $1 million.  On the other hand, Senate President John Cullerton may be seeking a progressive state income tax on a lower income threshhold:

http://www.chicagobusiness.com/article/20140320/BLOGS02/140329980/madigan-moves-for-millionaire-surcharge?r=6778C2146356E5Z

 

Severance Pay Held Taxable

Severance Pay

The U.S. Supreme Court ruled severance pay is taxable income.  Lower courts issued divided rulings on the issue.  However, it should not come as a surprise that the Supreme Court recently ruled that severance payments to laid off workers are subject to Social Security, Medicare and federal income tax.  Therefore, recipients of severance pay should retain a CPA to understand the tax implications of severance pay.  Also, get full details of the ruling in U.S. v. Quality Stores:

http://www.accountingtoday.com/news/supreme-court-rules-severance-pay-taxable-income