New in 2013 U.S. tax year

SUMMARY OF THE MOST IMPORTANT CHANGES

For 2013 U.S. individual tax returns




Income tax rate increase for high income taxpayers

tax rates at 10%, 15%, 25%, 28%, 33% and 35% remain;

new tax rate at 39.6% is applied to income above: $400,000 single; $450,000 married filing jointly; $225,000 married filing separate; $425,000 head of household

U.S. Tax Rates



Capital gain & dividend rate increase for high income taxpayers

top rate for long-term capital gains rises from 15% to 20%;

top rate for short-term capital gains rises from 35% to 39.6%;

applies to income above: $400,000 single; $450,000 married filing jointly; $225,000 married filing separate; $425,000 head of household;



Personal exemption phase-out & itemized deduction limitation for high income taxpayers

the personal exemption amount for 2013 is $3,900;

thresholds: $250,000 single; $300,000 married filing joint; $150,000 married filing separate; $275,000 head of household


Personal exemptions are subject to phase-out limits, called the personal exemption phaseout (or PEP) which did not apply in last three years preceding 2013. The personal exemption phases out (gradually reduces) by 2% for each $2,500 by which an individual's adjusted gross income for the year exceeds a threshold amount.


Example: A taxpayer has adjusted gross income of $300,000 in 2013 and he files as single and claims a personal exemption. The relevant threshold for 2013 is $250,000 for single filers. The taxpayer's adjusted gross income of $300,000 exceeds the threshold of $250,000 by $50,000. The excess amount is divided by $2,500, which is 20, and multiplied by 2%, to get 40%. The taxpayer reduces her personal exemptions by 40%. For 2013, his personal exemptions are reduced by 3900 x 40%, or $1,560.



Pension provision

Retirement plans (401(k) and IRA accounts) can allow participants to elect to transfer amounts to designated Roth accounts. They are treated as taxable rollover contributions.

The IRA roll-over into a Roth account is taxable for U.S. purposes, however note that it may also be taxable for Dutch purposes.



Additional Medicare Tax – Individuals

0.9% tax on wages, compensation and self-employment income received in excess of: $250,000 married filing joint; $125,000 married filing separate; $200,000 others;

generally applies to U.S. employers


more on Additional Medicare Tax



Net Investment Income Tax (NIIT)

Medicare tax will apply to investment income;

The tax rate of 3.8% applies to the smaller of

a) Net Investment Income or

b) the amount by which Modified Adjusted Gross Income (MAGI) exceeds the applicable threshold ($250,000 married filing joint or qualifying widow; $125,000 married filing separate; $200,000 others);

MAGI includes the sum of

a) adjusted gross income

b) Form 2555 exclusions (i.e. the foreign earned income exclusion)

c) amounts of any deductions or exclusions (taken into account in computing adjusted gross income) not included in determining the amount of Form 2555 exclusions.


more on NIIT