The 2013 social security wage base is $113,700. It will be increased to $117,000 in 2014. For 2013 and 2014, the self-employment tax rate is 15.3% (social security rate 12.4% plus Medicare tax rate of 2.9%).

For 2013, the social security rate for employees and employers is 6.2% each and the Medicare tax rate is 1.45% each. No change in 2014.

For 2013, higher-income taxpayers may have to pay one or both of the new additional Medicare taxes. The additional Medicare tax is suppose to help pay for Obamacare.

The 0.9% tax applies to wages, other employee compensation, and net self-employment earnings exceeding:

• $250,000 if married filing jointly
• $125,000 if married filing separately
• $200,000 ( all other filing statuses)

The tax applies on Form 8959.

An employer will only withhold the additional Medicare tax once wages exceed $200,000.

Net Investment Income Tax (3.8%):

The 3.8% additional Medicare tax (called the Net Investment Income Tax or NIIT) applies to taxpayers with net investment income if modified adjusted gross income (MAGI) exceeds:

• $250,000 if married filing jointly or qualifying widow or widower
• $200,000 if single or head of household
• $125,000 if married filing separately

MAGI Thresholds:

The thresholds are based on modified adjusted gross income. MAGI is the same as adjusted gross income (AGI) unless the foreign earned income exclusion is claimed. If the foreign earned income exclusion is claimed, you add it back to your AGI to derive MAGI (minus any above-the-line deductions or exclusions that were disallowed or allocable to the excluded foreign earned income).

If MAGI exceeds the threshold for your filing status, the 3.8% tax applies to the lesser of:

• Your net investment income or
• The MAGI exceeding the threshold

For example, if your net investment income is $25,000, but your MAGI exceeds your threshold by $10,000, the 3.8% applies to the lesser amount of $10,000.

Estates and Trusts:

Estates and trusts may also be subject to the net investment income tax. The 3.8% tax generally applies to the lesser of its undistributed net investment income for the year or the excess of its AGI above the annual threshold for the 39.6% bracket for an estate or trust. For 2013, the 39.6% bracket threshold is $11,950.

Grantor trusts and certain charitable trusts are exempt from the 3.8% tax.

Investment income includes:

• Taxable interest
• Dividends
• Payments from commercial annuities
• Rents
• Royalties
• Capital gains from sales of stocks, bonds, mutual funds, or investment real estate including a vacation home.
• Capital gain distributions from mutual funds, and passive income from partnerships and S corporations, including gain from the sale of a partnership or S corporation interest if you were a passive owner.

Do not count as investment income the following:

• Social Security benefits
• Nontaxable veterans benefits
• Income from businesses, including partnerships and S corporations in which you materially participate
• Tax-exempt interest
• Distributions from traditional IRAs, Roth IRAs, 401(k) plans and other qualified retirement plans such as pension plans, 403(b) plans and qualified annuity plans
  • Keep in mind, although a taxable distribution from a traditional IRA or a qualified retirement plan is excluded from the investment income category, these distributions are part of your MAGI.
    
    This means, these distributions can increase your MAGI above the threshold for the 3.8% tax or increase the tax if you are already over the threshold. This does not apply to qualified Roth IRA distributions, tax-exempt interest, or other item excluded from MAGI.
• Life insurance benefits
• Alimony

If you sell your home at a gain, treat the gain as investment income for purposes of the 3.8% tax only to the extent that is exceeds the applicable home sale exclusion, which is $250,000 for single taxpayers and $500,000 for joint filers. If the gain is excluded from income, it is not subject to the 3.8% tax.

Form 8960:

Form 8960 is used by individuals, estates, and trusts to figure the Net Investment Income Tax (NIIT).

Investment Expenses:

Investment expenses that are allocable to investment income are entered in Part II of Form 8960 and subtracted from investment income in Part III to arrive at net investment income.

Allocable investment expenses include items such as, brokerage fees, investment advisor fees, investment interest, rental and royalty activity expenses, and state and local income taxes allocable to items included as investment income.

Each Allowable Exemption: $3,900

Phaseout of Exemption for 2013:

• Joint return/Qualifying widow(er): Starts at $300,000/ Ends at $422,500
• Head of Household: Starts at $275,000/Ends at $397,500
• Single: Starts at $250,000/Ends at $372,500
• Married filing separately: Starts at $150,000/Ends at $211,250

• Joint return and qualifying widow(er): $12,200
• Head of household: $8,950
• Single: $6,100
• Married filing separately: $6,100
• Dependents - minimum deduction: $1,000
• Additional Deduction if Age 65 or Older or Blind:
  • Married-per-spouse, filing jointly or separately:
    • $1,200 ($2,400 for both age and blindness)
  • Qualifying widow(er):
    • $1,200 ($2,400 for both age and blindness)
  • Single or head of household:
    • $1,500 ($3,000 for both age and blindness)

• Business Use: 56.5 cents per mile
• Medical and Moving: 24 cents per mile
• Charitable: 14 cents per mile

• Transit passes and commuter vehicle transport: $245 per month
• Qualified parking: $245 per month
• Qualified bicycle commuting: $20 per month

• Traditional IRA contribution limit: $5,500
• Additional contribution if age 50 or older but under 70 1/2: $1,000
• Deduction phaseout for active plan participant:
  • Single or head of household: $59,000 - $69,000
  • Married filing jointly, two participants: $95,000 - $115,000
  • Married filing jointly, one participant:
    • Participant spouse: $95,000 - $115,000
    • Non-participant spouse: $178,000 - $188,000
    • Married filing separately, live together, either participates:
      • $0 - $10,000
  • Married filing separately, live apart all year:
    • Participant spouse: $59,000 - $69,000
    • Non-participant spouse: no phaseout
• Roth IRA contribution limit: $5,500
  • Additional contribution if age 50 or older but under 70 1/2: $1,000
  • Contribution limit phaseout range:
    • Single, head of household: $112,000 - $127,000
    • Married filing separately, live apart all year: $112,000 - $127,000
    • Married filing jointly, or qualifying widow(er): $178,000 - $188,000
    • Married filing separately, live together at any time: $0 - $10,000

• 401(k), 403(b), 457 plans: $17,500
• Salary-reduction SEP: $17,500
• SIMPLE IRA: $12,000
• Additional contribution if age 50 or older:
  • 401(k), 403(b), governmental 457 and SEP plans: $5,500
  • SIMPLE IRA: $2,500

• American Opportunity credit limit-per student: $2,500
• Lifetime Learning credit limit-per-taxpayer: $2,000
• Phaseout of American Opportunity credit:
  • Married filing jointly: $160,000 - $180,000
  • Single, head of household, or qualifying widow(er): $80,000 - $90,000
• Phaseout of Lifetime Learning credit:
  • Married filing jointly: $107,000 - $127,000
  • Single, head of household, or qualifying widow(er): $53,000 - $63,000
• Student loan interest deduction limit: $2,500
  • Phaseout of deduction limit:
    • Married filing jointly: $125,000 - $155,000
    • Single, head of household, qualifying widow(er): $60,000-$75.000
• Coverdell ESA limit: $2,000
  • Phaseout of limit:
    • Married filing jointly: $190,000 - $220,000
    • All others: $95,000 - $110,000
• Tuition and fees deduction:
  • Tuition and fees deduction: tier 1 limit Income cut-off $4,000
    • Married filing jointly: $130,000
    • Single, head of household, or qualifying widow(er) $65,000
  • Tuition and fees deduction: tier 2 limit Income cut-off $2,000
    • Married filing jointly: $160,000
    • Single, head of household, or qualifying widow(er): $80,000

• Limit on premium allowed as medical expense
  • Age 40 or under: $360
  • Over 40 but not over 50: $680
  • Over 50 but not over 60: $1,360
  • Over 60 but not over 70: $3,640
  • Over 70: $4,550