Tax season is upon us again! There were some important changes last year that may have an impact on your expatriate tax return. David McKeegan, co-founder of Greenback Expat Tax Services explains the changes that may affect you for tax year 2013.
Hi, everybody. I’m David McKeegan with Greenback Expat Tax Services, and there are some new taxes and new tax rates for the 2013 tax year that we want to let you know about. The first one you need to know about is that the 39.6% tax rate is back. This will impact individuals who earn over $400,000 or people married filing jointly who make over $450,000.
There’s a Medicare surtax this year. Now, normally you pay 1.45% of your salary to Medicare, and your employer pays the other 1.45%. Now, this year, if you make over $200,000 if you’re single or over $250,000 if you’re married filing jointly, then you’ll pay a surcharge of 0.9% in addition to the 1.45%.
You may have heard that there’s also a net investment income tax of 3.8%. This will impact individuals who have a modified adjusted gross income of at least $200,000 or $250,000 if you’re married filing jointly. This is calculated as the lesser of the amount that exceeds the threshold or the taxpayer’s net investment income. Now, net investment income includes things like interest, dividends, capital gains, rents, and royalty income and certain business income if it falls into those categories, as well. So that’s an important one that could be a big tax if you’re not careful.
Now, with Obamacare or the Affordable Care Act, there’s what we call or what the IRS calls the shared-responsibility payment. Now, if you’re an expat and you qualify under the Physical Presence test or the Bona Fide Residence test, then you’ll be excluded from this shared-responsibility payment. If not, you’ll be subject to the greater of 1% of your taxable income or up to $285 for a family.
This will increase over the next couple years, but as long as you qualify under the Physical Presence test or the Bona Fide Residence test, this won’t affect your expatriate tax return. Thank you very much, and if you have questions, please let us know.
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