As tax season starts, Plantation, Fla., accountant Sheri Schultz has started crunching numbers – and she doesn’t like what she sees. Her family is facing tax increases to the tune of thousands of dollars this year.
They and other families with high dual incomes are finding they will owe more in new taxes this year after Congress voted on increases to avoid the so-called fiscal cliff. Specifically, married couples who earn at least $250,000 a year will be paying more in taxes – much more than their single counterparts, who are allowed to make $200,000 a year before higher taxes kick in.
“It’s a hidden tax,” said Coral Springs, Fla., accountant Joel Feller. “People are in for a big surprise.”
Couples that have both spouses working were hardest hit by the new tax increases. More than one-third of women out-earn their husbands, according to the U.S. Bureau of Labor Statistics.
Schultz is one of them – and now her family will be paying more in taxes than if she had not married. “It’s absolutely unfair,” she said.
Nationally, 83 percent of households making above $250,000 are led by married couples, who would be hit by the new taxes, according to Maryland-based Sentier Research Group, which recently crunched U.S. Census Bureau data.
Most of the attention has been on Congress raising taxes on people who make at least $400,000. But others who are doing well financially but make less will still pay more taxes.
Schultz said she already knows that her husband and their three children are getting hit hard with new federal taxes on several fronts, from added Social Security taxes to tax breaks cut because of their high income.
The family is losing part of their deductions and personal exemptions, amounting to thousands of dollars in additional taxes – thanks to Congress limiting deductions and exemptions of couples who make more than $300,000 a year in adjusted gross income, during the recent fiscal cliff negotiations. (Singles aren’t hit until they earn $250,000 a year in adjusted gross income).
Then Schultz and her husband will have to pay the extra 2 percent in Social Security taxes on each of their first $113,700 in yearly income.
“This is the double whammy for dual-income working couples,” accountant Feller said.
A single person earning their income would only have to pay once on the first $113,700, he noted.
High-income couples will also have to pay more under the new health care law, Feller added. It raises the Medicare tax in 2013 by 0.9 percent for those single tax filers who earn more than $200,000 a year or $250,000 for married couples filing jointly, Feller said.
Finally, under the new health care law, people in those higher income groups will also pay an extra 3.8 percent tax on capital gains, dividends, interest, annuities, royalties, rental income and on investments, Schultz said.
She said the new taxes hit dual-income professionals the most.
So far, some affluent taxpayers are resigned to the increases, Feller said.
That may change, though, among the many who don’t realize yet that they have been caught up in the tax increases, he added.
“When they see the tax bills, they may start complaining,” Feller said.
Married couples that make at least $250,000, who will be more limited in the amount of deductions and personal exemptions they can claim. They will also pay:
- 2 percent more in Social Security taxes.
- Just under 1 percent more in the Medicare tax.
- An extra 3.8 percent tax on capital gains, dividends, interest, annuities, royalties, rental income and investments.