How Many 2013 Tax Brackets
I made a bet with my wife the other day that there was at least 30 tax brackets for 2013. Now my wife really does not care how many tax brackets there are and she knew I was teasing her about this, but for 2013, there is probably at least 60 or more tax brackets for the year depending on how many personal exemptions you have.
Under 2012 law, there were essentially 6 tax brackets, 10%, 15%, 25%, 28%, 33% and 35%. Now, for 2013, we have these same brackets plus the 39.6% new top bracket. In addition, if your income exceeds a certain level ($300,000 for married couples) 3% of your itemized deductions will now be phased out. This now adds another 7 tax brackets.
The phase-out of your personal exemptions is what really adds more tax brackets. Each exemption is phased-out by 2% for each $2,500 of income increase (or % thereof). Therefore, as you add kids, your marginal ordinary tax rate goes up. I worked up this handy little table based upon a married couple with a family of four:
| Tax Bracket | ||||||||
| Normal | 10.0% | 15.0% | 25.0% | 28.0% | 33.0% | 35.0% | 39.6% | |
| I/D Phaseout | 10.3% | 15.5% | 25.8% | 28.8% | 34.0% | 36.1% | 40.8% | |
| Exemptons | 1 | 10.3% | 15.5% | 25.8% | 28.9% | 34.0% | 35.0% | 39.6% |
| Exemptons | 2 | 10.6% | 16.0% | 26.6% | 29.8% | 35.1% | 35.0% | 39.6% |
| Exemptons | 3 | 11.0% | 16.5% | 27.4% | 30.7% | 36.2% | 35.0% | 39.6% |
| Exemptons | 4 | 11.3% | 17.0% | 28.3% | 31.7% | 37.4% | 35.0% | 39.6% |
| Exemptons | 5 | 11.7% | 17.6% | 29.3% | 32.8% | 38.7% | 35.0% | 39.6% |
| Exemptons | 6 | 12.1% | 18.2% | 30.3% | 33.9% | 40.0% | 35.0% | 39.6% |
As you can see, based on a married couple with four children, there are now actually at least 44 different tax brackets. The Itemized Deduction phase-out bracket and the phase-out for one personal exemption are actually not the same %. The itemized deduction is phased out by 3% for 2013 while the exemption is phased-out by 3.12%, but when this is rounded in the table, they both show as 3%. If we combine the 3% itemized deduction phase-out plus each exemption phase-out, we would probably have another 40 or so tax brackets.
Another unique feature of the exemption phase-out is the 33% tax bracket will be higher than the 39.6% tax bracket when you have 4 or more children. As you can see from the table, with 4 kids (6 exemptions), your marginal tax rate is 40%, whereas, the 39.6% tax bracket remains constant. This is due to all personal exemptions being phased-out before the top bracket kicks in. Also, I am not even counting all the different capital gains tax brackets.
So, as we always say when someone asks us a tax question “It Depends!”. This year, the answer will be even more relevent when someone asks us what their tax bracket is.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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