2013 Federal Income Tax Brackets (Projected & Actual)

by Michael on Nov 30, 2012 · 4 comments

Photo of 1040 Tax Form with a Pen and Calculator

With all the drama surrounding the ongoing fiscal cliff negotiations, it’s hard to say for certain what 2013 tax brackets will look like.

That being said, the Bush-era tax cuts are currently set to expire, meaning that rates will be going up if Congress doesn’t act.

Update: At long last, Congress has acted and the brackets going forward will retain their same general structure with the addition of a 39.6% bracket at the high end — i.e., for singles/couples earning with taxable incomes in excess of $400k/$450k. See below for details.

At the same time, the boundaries of the tax brackets will be changing (as they always do) thanks to our good friend inflation.

Given that the consumer price index (the CPI-U to be exact) increased 2.57% over the past year, we can expect the bracket boundaries to move by a similar amount.

We’ll start by looking at what will happen if the tax cuts expire because that’s the way the law is currently written.

Income tax brackets under current law

In short, if the Bush tax cuts are allowed to expire, the 10% tax bracket will disappear and the rates associated with the remaining five brackets will increase. Thus, the 25% bracket will move to 28%, the 28% bracket will move to 31%, the 33% bracket will move to 36%, and the 35% bracket will move to 39.6%.

After adjusting the income amounts for inflation, here’s how the brackets will look:

 Tax Bracket Single Filers Married Filing Jointly
15% Bracket$0 to $36,250$0 to $60,550
28% Bracket$36,250 to $87,850$60,550 to $146,400
31% Bracket$87,850 to $183,250$146,400 to $223,050
36% Bracket$183,250 to $398,350$223,050 to $398,350
39.6% Bracket$398,350+$398,350+

Income tax brackets if cuts are extended

If, on the other hand, the Bush tax cuts are extended in their entirety, then (after adjusting for inflation) this is how the brackets will look:

 Tax Bracket Single Filers Married Filing Jointly
10% Bracket$0 to $8,950$0 to $17,900
15% Bracket$8,950 to $36,250$17,900 to $72,500
25% Bracket$36,250 to $87,850$72,500 to $146,400
28% Bracket$87,850 to $183,250$146,400 to $223,050
33% Bracket$183,250 to $398,350$223,050 to $398,350
35% Bracket$398,350+$398,350+

In other words, these are pretty much the same as the 2012 tax brackets, but with the income limits adjusted upward.

Income tax brackets in there’s a compromise

Or… If there’s a compromise and Congress agrees to retain the tax cuts for the lower brackets but increase tax rates for those with higher incomes, this is what the brackets might look like:

 Tax Bracket Single Filers Married Filing Jointly
10% Bracket$0 to $8,950$0 to $17,900
15% Bracket$8,950 to $36,250$17,900 to $72,500
25% Bracket$36,250 to $87,850$72,500 to $146,400
28% Bracket$87,850 to $183,250$146,400 to $223,050
33% Bracket$183,250 to $203,600$223,050 to $247,000
36% Bracket$203,600 to $398,350$247,000 to $398,350
39.6% Bracket$398,350+$398,350+

In other words, the four lower income brackets will stay the same, the top end of the 33% bracket will reach a bit higher, and the 35% bracket will be split into 36% and 39.6% tax brackets.

No matter what happens with the tax brackets, it looks like the personal exemption will rise from $3,800 to $3,900 and the standard deduction for single filers will increase from $5,950 to $6,100.

In contrast, married filers will feel an added pinch if the Bush tax cuts expire, as their standard deduction will decrease from $11,900 to $10,150. But if the cuts don’t expire, it will increase to $12,200.

So there you have it. As I said in my earlier post about the fiscal cliff, it will be interesting to see how this plays out. My best guess is that the two sides will bicker until the cuts expire and then they’ll work out a compromise. But who knows?

Regardless, the filing deadline for 2013 income taxes isn’t actually until April 15, 2014 and everything will be sorted out well before then.

[UPDATE] Actual 2013 income tax brackets

Okay, so Congress reached a compromise but it’s a bit different from scenario #3, above. Instead of splitting the 35% bracket into 36% and 39.6% brackets, they retained the 35% bracket and added a 39.6% bracket on top. The dividing lines have also been adjusted.

Here’s what the situation for 2013 now looks like:

 Tax Bracket Single Filers Married Filing Jointly
10% Bracket$0 to $8,925$0 to $17,850
15% Bracket$8,926 to $36,250$17,851 to $72,500
25% Bracket$36,251 to $87,850$72,501 to $146,400
28% Bracket$87,851 to $183,250$146,401 to $223,050
33% Bracket$183,251 to $398,350$223,050 to $398,350
35% Bracket$398,351 to $400,000$398,351 to $450,000
39.6% Bracket$400,001+$450,001+

Until further notice, this will be the general structure of our tax brackets, though income thresholds will be updated annually for inflation.

Hat tip to The Tax Foundation for running the numbers.

1 AverageJoe November 30, 2012 at 5:38 pm

“Drama” is the right word. The salvos fired today give me even less confidence that anything will change. What’s bigger than this to me is that in today’s USA Today (my “highbrow” reading), 69% of people said they don’t have a comprehensive financial plan.

To those people, there’s no way they can measure the effect of the fiscal cliff. That might be even sadder than Congress!

2 The College Investor November 30, 2012 at 7:47 pm

Very interesting. Should be interesting to see what happens with the fiscal cliff!

3 Edward Antrobus November 30, 2012 at 7:49 pm

If lower tax cuts expire, I see my tax bill going up by about $30 per week.

4 Hank December 2, 2012 at 6:08 pm

Great rundown of what we are all facing in the new year.

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