We’ve been enjoying George W. Bush’s federal income tax cuts since 2002 but now at the end of 2012 they are set to expire. Congress will decide whether to keep the cuts or go back to five federal tax brackets, eliminating the nice low 10% bracket for everyone.
It’s likely that individual federal income tax cuts will be extended by Congress, but keep in mind that The Budget Control Act of 2011 requires the deficit be reduced by a certain dollar amount over the next nine years. That’s going to be hard to achieve if Congress votes to extend the Bush era tax cuts.
What’s at stake? Well the bottom drops out, literally. We’ve paid 10% on the first $8750 or so (for single filers) for almost the past decade now. The 2013 Federal Tax brackets may look very different without that bottom rung of the tax ladder. It means we’ll all be paying more taxes on that first chunk of money we make: 50% more.
The higher end of the tax brackets would go even higher. Right now, the highest percentage anyone pays for income tax is 35%. Failure to renew the tax cuts would put two new brackets at the top: 36% and 39.6%.
Here’s what the 2013 Federal Tax Brackets would look like:
- 15% (10% bracket folded into 15% bracket)
- 28% (up from 25%)
- 31% (up from 28%)
- 36% (up from 33%)
- 39.6% (up from 35%)
Notice the 10%, 25%, 28% and 33% are all gone, replaced with higher tax brackets. This is what the 2013 Federal tax brackets could look like if Congress votes not to extend the current tax rates/cuts.