As featured in The Wall Street Journal, Money Magazine, and more!
     

2013 Federal Income Tax Brackets and Marginal Rates

This article was written by in Taxes. 13 comments.


When you file your federal income tax return before April 2013, you’re filing your 2012 taxes, and the 2012 income tax brackets define the amount of tax you owe to the government before credits and after-tax adjustments. The first paycheck or consultancy fee you earn in 2013 falls under new rules, however. The 2013 income tax brackets apply to money you earn during that year, although you may not notice how this affects you until you file your income taxes in early 2014. If you pay estimated taxes throughout the year, you may be more aware of the change in brackets.

Looking for the 2014 federal income tax brackets and marginal rates? They are included in the table on the page you’ll find by following this link.

Now that Congress has passed a new law to avoid the fiscal cliff, the American Taxpayer Relief Act of 2012, we have a better picture of the marginal tax rates for 2013 ahead of the official announcement from the IRS. With the changes to the top tax bracket set by the law and the remaining brackets adjusted by inflation with help from The Tax Foundation, this article includes the likely tax scenario.

In 2013, the Bush-era tax cuts have been extended — made “permanent” — for all taxpayers but the highest tax bracket. This is similar to one of the scenarios predicted earlier, but the question up until the last minute has been at what income level would the older, higher top marginal tax rate be effective.

Republicans wanted this number to be high, where the top tax rate would affect only those taxpayers earning over $1,000,000, while President Obama was aiming for the top tax rate to affect more taxpayers, including those earning over $200,000 or $250,000. The Congress settled on a compromise of $400,000 for taxpayers filing single as the threshold for the top tax rate, which is very close to what the top tax bracket would have been anyway, due to inflation.

As a result, these are the tax rates you can expect in 2013.

Rate Single Filers Married Joint Filers Head of Household Filers
10% $0 to $8,925 $0 to $17,850 $0 to $12,750
15% $8,925 to $36,250 $17,850 to $72,500 $12,750 to $48,600
25% $36,250 to $87,850 $72,500 to $146,400 $48,600 to $125,450
28% $87,850 to $183,250 $146,400 to $223,050 $125,450 to $203,150
33% $183,250 to $398,350 $223,050 to $398,350 $203,150 to $398,350
35% $398,350 to $400,000 $398,350 to $450,000 $398,350 to $425,000
39.6% $400,000 and up $450,000 and up $425,000 and up

Keep in mind that the tax rates listed in these tables are marginal rates. That means that you do not owe your rate on all of your income. For example, if you’re single, you earn $100,000 per year, you would not owe 28% on all of your income — you would not owe $28,000 to the federal government. You would owe 10% of $8,925, 15% of $27,325 (the difference between the top and the threshold of the second tax bracket), 25% of $51,600, and 28% of $12,150 (the difference between your income and the threshold of the third tax bracket).

That calculation results in $21,293, or an effective (not marginal) tax rate of 21.2%. That will be further reduced by any credits, assuming your taxable income is the same as your gross income. Your effective tax rate could be much lower if deductions have already reduced your taxable income to $100,000 from a larger gross income. For example, if a 401(k) contribution reduced your taxable income from $115,000 to $100,000, you would still use the same tax calculation I’ve described here, but your effective tax rate would be 18.5%.

Now that Congress has passed the American Taxpayer Relief Act of 2012, I can be reasonably sure that these will be the official tax brackets announced by the I.R.S. Any moment now, President Obama will sign the final tax rate bill into law, and rather than needing to extend the Bush-era tax cuts every year, they will be permanent. Congress can, however, create a new law at any time to change the rates or the tax brackets, but the end-of-year political dance about whether to renew these specific tax cuts will no longer exist.

Updated October 3, 2013 and originally published October 22, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
avatar
Points: ♦127,535
Rank: Platinum
About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 13 comments… read them below or add one }

avatar Melissa

Thank you for laying this out clearly. It is difficult when so much is influx. Do you think they will have time to extend the Bush era tax cuts if they wait until after the election?

Reply to this comment

avatar Luke Landes ♦127,535 (Platinum)

Congress can decide well into 2013 what they want to do with the 2013 tax rates, and have them be effective retroactively starting with the beginning of the year. The longer they take, the more anxious taxpayers will be, though — particularly high-income earners — so it’s in their best interest to get it done sooner. The fiscal cliff encourages Congress to make some decisions by the end of the year, and some definition around the tax rates could come out of that pressure.

Reply to this comment

avatar jim

My take on this : I think it mostly lies in the hands of Congress. I think scenario #1 is the most likely and scenario #3 is also possible. I think this because last time the cuts were due to expire congress extended them for everyone. I expect thats what will happen again. Honestly I think who ends up president will have less impact. At most the president can veto a bill, but congress fights over stuff so much that the parties have to have something possible before it could face a veto. So whoever wins the president race, the real decision on the taxes are really made in congress. Sure they face a veto but they can’t get a bill past the other party in congress that is anything a president would veto. In other words, if a bill is so bad that the president would veto it then they couldn’t get that bill past the presidents party members in congress. Neither party wants to raise taxes on low/middle class so I don’t think thats going to happen. Theres a small chance the congress may fight so much they end up in gridlock and don’t accomplish anything and the tax cuts expire but I don’t think thats likely.

Just my opinion

Reply to this comment

avatar SteveDH

Another option that has been discussed, albeit not in great detail, is leaving the tax cuts in place but denying many of the beloved deductions, exemptions, and tax credits to moderate to high-earners. That would be a huge monkey wrench in the gears of the IRS and any business associated with tax filings. The later they do it – the worse it would be and frustration would become a nationwide affliction we’d need to find a vaccine for.

Reply to this comment

avatar Veronica @ Pelican on Money

Some are saying we need tax increases not tax cuts, what do you think about that? I’m guessing those comments were voiced towards paying off our national debt, since it wouldn’t make any sense for anyone to want to increase their own taxes.

Reply to this comment

avatar Ceecee ♦53 (Newbie)

If letting the tax cuts expire would be viewed by Grover Norquist as a tax increase, there will be a lot of noise against it. There are so many figures being bandied about out there in campaign land and so little agreement about which math will work out. It is dizzying. I don’t think anyone can guess what will happen with the Bush tax cuts. If they are extended, Congress will have to find another way to fill the deficit gap.

Reply to this comment

avatar Marie at FamilyMoneyValues

I think the Bush era tax cuts will expire for all, the planned budget cuts and the new tax increases will remain in place, mainly because I lack confidence that our elected federal officials will be able to reach agreement on an action plan. We will come to the edge of the fiscal cliff and most likely step off.

Reply to this comment

avatar Leonard

The only argument I have heard in support of extending the Bush era tax cuts is that jobs will be lost. If that is true, where are all the jobs the tax cuts should have created when the tax cuts were first implemented? I can accept an argument

Reply to this comment

avatar Leonard

I can accept an argument that small businesses might hire fewer new employees for awhile if tax rates go up, but to say an employer making over $250,000 a year would cut positions because of the higher tax rates tells me the business may have been trying to grow the business too fast to support that many employees, or the owner is living beyond his/her income level.

Reply to this comment

avatar Apex ♦478 (Nickel)

Your update after the fiscal cliff bill made the assumption that the 35% rate was removed. This is not accurate. The old law applies unchanged to everything under the cut-offs.

That means that between 398,350 and 400 for single people is a miniscule amount of money subject to the 35% bracket. For marrieds this bracket is a little wider going from the same number up to 450.

If this were not so, in effect these people just under the cutoffs would technically have gotten a tax cut seeing income that was scheduled to be taxed at 35% drop back to 33%.

What I don’t know is if these strange small brackets will remain in the code indefinitely adjusted for inflation or if the inflation adjustments will squeeze the 35% bracket out until it gets up to 450K. My suspicion is that with the sloppy last minute writing of the law it simply states that the old rules apply with the addition of the new rates beginning at 400 and 450 which are then indexed to inflation in the same manner that all other brackets are. If that is how it is written then this goofy little 2K wide 35% bracket will be stuck in the code permanently or until tax law is changed again.

Reply to this comment

avatar Apex ♦478 (Nickel)

Also the head of household appears to have been set at 425 for the top bracket with the 35% bracket starting at the same 398,350.

Reply to this comment

avatar Luke Landes ♦127,535 (Platinum)

Interesting. That’s not how it was originally reported, and I fail to see the sense of such a small tax bracket, but sense often escapes Congress and the law. I’ll look into it and update the article.

Reply to this comment

avatar chris a

A quick way to help with the natiional debt is, why don’t congress pay taxes like all of us taxpayers? I am a hardworking single parent who pay taxes like everyone else, what makes our congressman so special to make laws they don’t live by… Congress makes the laws, get paid lots of money, receive a good retirement check once out of office and still don’t live like a normal american citizen who DON’T pay ttaxes. They are whining and complaining about our debt and we are complaining about paying more taxes why don’t they feel the burden that we have to go through of losing more money after paying taxes. Congress doesn’t know how taxpapers feel until the IRS come after them for not paying there taxes. That’s how I feel, if you never experience paying taxes then why complain about our national debt when congress is part of our problem.

Reply to this comment

Leave a Comment

Connect with Facebook

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.

Notify me of followup comments via e-mail. You can also subscribe without commenting.

Previous post:

Next post: