On January 1, 2013 income tax rates are set to dramatically increase. Taxes on wages, investment interest, and other types of ordinary income, the top rates will rise from 35% to 39.6%.
In addition, the 3.8% Obamacare Medicare surtax will start January 1, 2013. The total rate that a top-bracket taxpayer will face will be 43.4%. In addition there is a .9% increase in the Medicare Tax on Wages above $200k ($250k for married joint returns.) The total jump from 35% to 43.4% is the largest tax increase in decades.
Investors will really suffer. The 2013 tax law will eliminate the maximum rates on dividends of 15% and instead treat dividends as ordinary income. The result would be dividends with taxes at the same top 43.4% rate that applies to ordinary income. The effect is dividend income tax would almost triple from 15% to 43.4%.
As of December 28, 2013, Congress and the President keep playing “chicken” with our tax laws and economy.