2013 Federal Income Tax Brackets: IRS Marginal Tax Rates

The 2013 tax year is still up in the air at this point, and depending on what happens in the Presidential election on November 6th, and what lawmakers decide to do, we could see some significant changes in the tax rates, or they could choose to extend current tax rates  – again – as happened last year when the Bush tax cuts were extended for 1 year.  Politicians seem to like to kick the can down the road and make hard decisions in the future – after the elections.  We’ll see what happens.

There seems to be a couple of scenarios that people think are more likely to happen once the politicians do finally sit down and start hashing things out.

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  • The Obama administration FY2013 budget proposal could pass: If it were to pass the rates for the two top tiers would increase to 36% and 39.6% respectively.  The 33% tax rate would increase to 36% for those making more than $250,000.
  • The Bush tax cuts could be allowed to expire. If they aren’t renewed as they were last year (for 1 year), and no new proposals are passed, the rates for all taxpayers would increase.

It’s always possible that something else could happen as well, we could see a completely different scenario after lawmakers start working on a compromise. At this point we really don’t know.  All I know is that if nothing is done, we could be looking at a scenario where we could be headed off the fiscal cliff, and that doesn’t sound like a situation any of us wants.

UPDATE 1/1/2013:  The fiscal cliff was averted and legislation was passed in order to extend rates for most taxpayers. Those making more than $400,000 as individuals or $450,000 as joint filers would see an increase of the top rate up to 39.6%.

2013 federal income tax brackets

2013 Federal Income Tax Rates

The rates for 2013 have now been passed after Congress passed fiscal cliff legislation on 1/1/2013:

2013 Tax BracketsSingleMarried Filing Jointly
10% Bracket$0–$8,925$0–$17,850
15% Bracket$8,926 –$36,250$17,850–$72,500
25% Bracket$36,250–$87,850$72,500–$146,400
28% Bracket$87,850–$183,250$146,400–$223,050
33% Bracket$183,250–$398,350$223,050–$398,350
35% Bracket$398,350–$400,000$398,350–$450,000
39.6% Bracket$400,000+$450,000+

The rates above are what came about after the 2013 fiscal cliff legislation was passed.

By way of comparison, here is the 2012 tax brackets:

2012 Tax BracketsSingleMarried Filing Jointly
10% Bracket$0 – $8,700$0 – $17,400
15% Bracket$8,701 – $35,350$17,401 – $70,700
25% Bracket$35,351 – $85,650$70,701 – $142,700
28% Bracket$85,651 – $178,650$142,701 – $217,450
33% Bracket$178,651 – $388,350$217,451 – $388,350
35% Bracket$388,350+$388,350+

Projections based on the administration’s proposals back in 2012  were that the tax rates would be increasing mainly for those who are making more than $250,000.  In fact it went up for those making more than $400,000 as individuals or $450,000 as joint filers.  The main changes:

  • Reinstate 39.6 percent tax rate in 2013 for those currently in the 35% bracket.
  • Payroll tax cut expired on 12/31/2012.

Other Possible Changes Happening In 2013

While the rates changing is a real possibility, there are other things that are slated to happen in 2013, and if nothing is done they could result in taxes going up for people.  Here are some of the main changes.

  • Bush tax cuts will lapse under current law: If current law did take effect and no new extensions of tax rates were passed, taxes would go up for all taxpayers. The curent federal income tax brackets would be increasing 3-6%.  The current tax bracket rates are at 10%, 15%, 25%, 28%, 33% and 35%.   They would increase to 15%, 28%, 31%, 36% and 39.6% respectively if they weren’t renewed. Update: rates only went up on those making more than $400,000-$450,000.
  • Temporary payroll tax cut will be gone: The payroll tax cut that we’ve had for the past 2 years will be expiring. That will mean increase of $1000 in taxes on average. Update: This cut has expired and was not renewed.
  • Child tax credit cut in half: The $1000 child tax credit would be cut in half to $500, from the current $1000.
  • Earned Income Tax Credit goes away:  One thing that could hurt low and middle income taxpayers is the fact that the Earned Income Tax credit, which is a refundable tax credit, would go away.
  • Estate taxes increase:  Currently the first $5 million of an estate avoids estate tax.  Above $5 million it would have a 35 percent tax rate. If it expires the exemption would drop to $1 million, and the tax rate would go up exponentially to 55 percent.  This could definitely hurt those with small family owned businesses. Update: this is now at 40 percent after the first $5 million.
  • High earners may be subject to new Medicare surtaxes: Those earning more than $200,000 single or $250,000 married filing joint may be subject to new surtaxes on investment income, as well as an increase in the Medicare payroll tax.
  • The marriage penalty returns: The standard deduction for married taxpayers would no longer be twice that of a single filer.  The so called “marriage penalty” would be re-instated.
  • Dividends taxed as ordinary income: The tax on dividends goes up from 15 percent to as much as 39.6 percent, which could be extremely bad for many seniors who rely on dividends. Update: Rates went up to 20% for those making more than $400,000-$450,000.

What do you think will happen with the 2013 tax rates, and do you think the government will pass an extension of the Bush/Obama tax cuts past this year?

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Last Edited: 2nd January 2013

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Comments

    Share Your Thoughts:

  1. says

    I think rates will go up on the 250k group and higher. I believe the republicans will blink first instead of being labeled the party that held the middle class hostage. I don’t think that is true, but the Democrats have been successful in recent years pushing their “fairness” mantra.

  2. says

    What I don’t get is why the tax brackets continue to penalize married couples where there are two income earners vs. one.

    If there is a single bread winner then your tax brackets are increased but if there are two, then your tax brackets are decreased ( assuming both are making are similar pay).

    • says

      I love that idea, DC. Our US congressman, Scott Tipton is in favor of that and he’s been crucified before over his suggestion about a flat tax. Basically, they say he wants to put more tax on the poor. The poor seem to rely more on government assistance, so shouldn’t it be fair to contribute something? I sound really Republican right now, and I’m really not, but taxes are too complicated and it should make more sense for sure.

      • BB says

        Get educated, Kim. “The poor seem to rely more on government assistance, so shouldn’t it be fair to contribute something?” Come on. Do some reading on the pros and cons of flat tax rates and you’ll see why people are against them.

  3. J. T. Green says

    The first five lines of the table you published for 2013 rates are identical to the 2012 rates. This doesn’t look correct when I compare it with other web sites.

    • says

      The table has been updated. It was first published when the rates were still speculation – except the upper ranges. All have now been updated to the current rates for 2013.

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