# What is income above 400K for singles, 450K for couples?



## GetawaysRus (Jan 1, 2013)

This is a test: do TUGGERS know everything?  I did some web searching this morning but some answers are lacking.  (I will try not to be political since that I know that this is verboten on TUG.)

I think many of us have been watching the nonsense in Washington.  So they are proposing a last minute deal.  I keep reading that income taxes will rise for singles with income above 400K and for couples with incomes above 450K.

From: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/31/your-fiscal-cliff-deal-cheat-sheet/
_Tax rates will permanently rise to Clinton-era levels for families with income above $450,000 and individuals above $400,000. All income below the threshold will permanently be taxed at Bush-era rates._

Here's 2 other sites I checked: 
http://www.forbes.com/sites/rickungar/2013/01/01/heres-the-deal-on-the-fiscal-cliff-deal/
http://www.dailyfinance.com/2012/12/31/fiscal-cliff-deal-details/

My question is: what is "income above 400K for individuals and 450K for couples?"

If I pull out my Federal tax return from last year, there are several things that could be called "income."

Line 22 has my "total income."  This is the sum of all wages, interest, dividends, alimony, capital gains, IRA and pension distributions, etc.  This is income before allowable deductions.  And this is what I personally consider my income.  If my wife were to ask me "what did we earn last year?" I would give her the figure on line 22.

Next we go to line 37.  That is "adjustable gross income."  I have a few line items that I place on lines 23-36, so my AGI is less than line 22.

Now we turn the page.  On page 2 of form 1040 we enter itemized deductions and personal exemptions.  So next we arrive at line 43, which is your "taxable income."  (Never mind the AMT - we haven't gotten to that yet.)

So, when the politicians talk about taxing incomes above 400K for individuals and 450K for couples, are they talking about the figure on line 22 (total income), line 37 (adjustable gross income), or line 43 (taxable income)?  I'm assuming that they are talking about line 43, but I can't find this spelled out anywhere when I search the Internet.

By the way, here are a few other juicy tidbits excerpted from the above websites that I have not heard discussed on the TV news:
1. However, not all taxpayers earning less than $450,000 come away unscathed by the deal as the agreement returns to the Clinton era limits on personal exemptions and itemized deductions for couples earning more than $250,000 and single filers earning in excess of $200,000. (Forbes)
2. Two limits on tax exemptions and deductions for higher-income Americans will be reimposed: Personal Exemption Phaseout (PEP) will be set at $250,000 and the itemized deduction limitation (Pease) kicks in at $300,000. (Washington Post - I think this says the same as the sentence immediately preceding this.)
3. Not included in the agreement is an extension of the payroll cut meaning that payroll taxes will rise by for 2 percent for all American wage earners. (Forbes - ooh, that's a whopper.  Haven't we been hearing for weeks that failure to extend the payroll tax cut could cause the economy to slow because consumers will have less spendable income?)
If I understand, and despite what the TV newscasters are saying, this is not quite so simple as "income above 400K for singles and 450K for couples."


----------



## AwayWeGo (Jan 1, 2013)

*Simplified Tax Form.*

Just 2 spaces *. . . *

1.  How much income did you get last year ? 

2.  Send it in. 

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​


----------



## Elan (Jan 1, 2013)

Does it really matter?


----------



## Passepartout (Jan 1, 2013)

A helluva lot more than I have to worry about!


----------



## Tia (Jan 1, 2013)

Not going to be my trouble either, sorry to say :ignore:


----------



## short (Jan 1, 2013)

The top tax bracket is most definitely on taxable income.

The phase out of deductions starts on adjusted gross income which will raise your taxable income.  Generally considered equivelant to an extra 1 percent tax rate.

Most notable dividends appear to now be taxable as ordinary income not capital gain.

Also the taxation of capital gain at zero and 10 percent for lower bracket individuals is gone.

You can read the bill online if one is so inclined.

Short


----------



## cotraveller (Jan 1, 2013)

GetawaysRus said:


> My question is: what is "income above 400K for individuals and 450K for couples?"



It is a question I have to find the answer to because I expect to win the Colorado Lotto, Powerball, or Mega Millions jackpot this year.


----------



## short (Jan 1, 2013)

Sorry.  Dividends do not go up to ordinary income but go up to the higher capital gain rate of 20 percent.


----------



## brigechols (Jan 1, 2013)

Totally agree with Short. "Taxable Income" is really Regularly Taxed Income minus Adjustments, Deductions, and Exemptions. An Internet search will show you a side-by-side comparison of income tax rates over the years.


----------



## am1 (Jan 1, 2013)

AwayWeGo said:


> Just 2 spaces *. . . *
> 
> 1.  How much income did you get last year ?
> 
> ...



Seems about right.  But then thousands of people would be with out work.


----------



## ronparise (Jan 1, 2013)

GetawaysRus said:


> This is a test: do TUGGERS know everything?  I did some web searching this morning but some answers are lacking.  (I will try not to be political since that I know that this is verboten on TUG.)
> 
> I think many of us have been watching the nonsense in Washington.  So they are proposing a last minute deal.  I keep reading that income taxes will rise for singles with income above 400K and for couples with incomes above 450K.
> 
> ...



Talk to your accountant..and no the tax code is not a simple thing


----------



## Patri (Jan 1, 2013)

I heard it was the difference between 15% and 20% tax rates.


----------



## zcrider (Jan 1, 2013)

I don't see the answer spelled out, but it only makes sense that it would be line 43.  That is all we are taxed on now, so it shouldn't change.


----------



## Talent312 (Jan 1, 2013)

GetawaysRus said:


> ... Not included in the agreement is an extension of the payroll cut meaning that payroll taxes will rise by for 2 percent for all American wage earners...



This is going to have an immediate impact...
It may be time to retire and collect SS, instead of paying into SS.


----------



## geekette (Jan 2, 2013)

Talent312 said:


> This is going to have an immediate impact...
> It may be time to retire and collect SS, instead of paying into SS.



Maybe for you (I'm not eligible yet anyway) but I need to keep on beyond those 35 years to keep making those crappo teen year wages fall off the record so SS is worth more.  That biweekly 2% is not at all reason to dump the day job for most of us, but if someone is near enough retirement, well, ok, if that's the deciding factor, go ahead and retire, but, delaying taking SS has a more substantial benefit than that measly 2% so beware cutting off the nose to spite the face.

the "payroll tax holiday" needed to end, and we need to quit pretending that ending it "raises taxes" since it really just gives back what didn't used to be in the paycheck.

to the original question, it's taxable income, after deductions (capped at an amt so large I'm never likely to get anywhere near), credits, etc etc.  Taxable income does not = gross pay nor net pay, it's farther down the chute.

Yes, tuggers do know everything.  Just ask one of us.


----------



## Passepartout (Jan 2, 2013)

geekette said:


> Yes, tuggers do know everything.  Just ask one of us.



I may not know everything- or even anything, but I've never let that stop me from sharing an opinion.

Here's one: If you can delay collecting your SS beyond age 62, your monthly SS payout will be 8% larger each year you delay. And best, this increase will be every month for the rest of your life.

Jim


----------



## geekette (Jan 2, 2013)

Passepartout said:


> I may not know everything- or even anything, but I've never let that stop me from sharing an opinion.
> 
> Here's one: If you can delay collecting your SS beyond age 62, your monthly SS payout will be 8% larger each year you delay. And best, this increase will be every month for the rest of your life.
> 
> Jim



Yes, and knowing that, I refuse to collect ASAP!  Of course, I expect to live well past 70 (relatives have made it to triple digits), but my FRA isn't until 67 anyway, so what's a few more years??

It's very difficult for me to understand the strategy of collecting as soon as eligible, UNLESS it is crucial to survival or one has reason to believe that they will not live long enough to make waiting worth it.  And I'm sure there are plenty of other scenarios between the two extremes.
~~

Collectively, Tuggers know everything, while there may not be any one of us that knows It All.


----------



## pgnewarkboy (Jan 2, 2013)

Passepartout said:


> I may not know everything- or even anything, but I've never let that stop me from sharing an opinion.
> 
> Here's one: If you can delay collecting your SS beyond age 62, your monthly SS payout will be 8% larger each year you delay. And best, this increase will be every month for the rest of your life.
> 
> Jim



The above response is incorrect.  Dates of birth and retirement are variables that impact the increase.


----------



## Passepartout (Jan 2, 2013)

pgnewarkboy said:


> The above response is incorrect.  Dates of birth and retirement are variables that impact the increase.



I should know better that to express any opinion about Social Security with 1 or 2 sentences. It's always more complicated than that. It still pays to delay collecting SS.


----------



## geekette (Jan 2, 2013)

pgnewarkboy said:


> The above response is incorrect.  Dates of birth and retirement are variables that impact the increase.



I don't think so.  Date of birth determines nothing but FRA and when age 62 is hit (first eligibility), FRA is hit, age 70 is hit.  

Retirement date also does not figure into it.  I can keep working past age 62 and collect SS.  I can keep working past age 62 until, say, age 65, retire, and still not collect until I'm 70.  Doesn't matter if it's W2 wages, 1099 or small business owner, SSA doesn't care, it only is concerned with whether I am eligible when I apply.

The amount you receive depends chiefly on your highest 35 earning years, and how many years pre or post your FRA.  

Jim is right that each year of delay brings a higher benefit, delaying until age 70 brings largest possible monthly benefit.  

Each year of delay brings an increase determined by SSA.  However, while one still works and delays beyond 62 or FRA, presumably those extra years are their highest earning years (or at least among the 35 highest) and can add further dollars to the eventual monthly benefit.

I do expect those "last years of work" to absolutely benefit me in wiping out the lowest annual pays of the 35 highest earning years.  I am shooting for highest possible monthly benefit, others shoot for collecting whatever they can as soon as they can.  

It's important to note that one can receive benefits and then suspend them to collect later, and that also results in a larger monthly benefit due to waiting.    

Bottom line, tho, people need to check on anything they read on the internet and determine for themselves how it works, and what is best for their particular situation.


----------



## pgnewarkboy (Jan 3, 2013)

geekette said:


> I don't think so.  Date of birth determines nothing but FRA and when age 62 is hit (first eligibility), FRA is hit, age 70 is hit.
> 
> Retirement date also does not figure into it.  I can keep working past age 62 and collect SS.  I can keep working past age 62 until, say, age 65, retire, and still not collect until I'm 70.  Doesn't matter if it's W2 wages, 1099 or small business owner, SSA doesn't care, it only is concerned with whether I am eligible when I apply.
> 
> ...



There are charts that explain the variables.


----------



## pacodemountainside (Jan 3, 2013)

*Social Security*

SS is very complicated and one does need to get numbers from them   to see how different scenarios play out and if 401Ks,   IRAs,  etc. may make sense to pay a financial planner to do some what ifs. Unfortunately ones date of demise is an  major unknown  variable.

Based on my checking out I came up with the following. Since I had had a stroke and aneurysm  and DOCs said probably good for 4-5 years,  I took at 62.

Using  very round numbers to keep math simple it worked out as follows:

Ar age 62 there is a flat 20% reduction from full amount at age 65.

So, at age 65 one can get $10,000

At age 62 one gets $8,000

So at end of 11 years at $8,000 it is $88K

So after 8 years at $10,000 it is $80K

However,  at age  65 due to annual increases base is higher for future increases, most calculators  come out that around 11+ years is break even point.  Actual COL increases are  unknown variable.

Then it gets  complicated. Is it better to take money today and  leave retirement money in IRA to compound tax fee?

Say one can live comfortably  on pension, hobby, etc. income and waits until age 70 to collect. Does the  much larger  SS payout  plus mandatory IRA  withdrawls  put in a higher tax bracket and bigger Medicare premium?


----------



## carl2591 (Jan 3, 2013)

a lot of answers but no one answered the question.. I believe the income level everyone is talking about is either line 37 AGI..or maybe line 43 taxable income..   that is the amount you are taxed on.

just in reading a form from IRS last year on a tax calculation that was wrong the are the lines they are most focused on. 

line 37 stated the AGI and line 43 said "taxable income".. total tax due was on line 61. 

not a rocket scientist here but that is kinda self explanatory. 


WINNER WINNER CHICKEN DINNER.....


----------



## pacodemountainside (Jan 3, 2013)

I would go with AGI although  can be a nebulous term.

If talking taxable income  which can be zero after applying deductions unless AMT gets you,   then  the IRS cannot  raise billions in  projected revenue! So, could be  taxable income  before  deductions, exemptions, credits, etc.

Readily agree none of the WSJ articles, et. al.   I have  read  define  how  $400K/$450K is arrived at!  There  was interesting   article  in WSJ about 9 pork barrel items that  snuck in on this legislation. Unfortunately political and cannot post!

To me income is  how much cash do I have in hand from   salary, dividends, interest, investments, SS, pensions, etc. Clearly this has no relationship to   virtually incomprehensible  tax code.

I guess the olde, how  high  is up applies. Praise de Lord for "Tax Cut" and similar to save us from the IRS Demons!

Needless to say computer programmers will be working over time to deal with!


----------



## Talent312 (Jan 3, 2013)

I fully accept the premise that its better to delay taking SS to inrease the payout.
In fact, it's better to use up other sources of retiremennt $$ first.

OTOH, delay also has a motality risk. If you die first, you won't get any increase.
Your wairing will have been worth nothing.
.
.


----------



## BocaBum99 (Jan 4, 2013)

carl2591 said:


> a lot of answers but no one answered the question.. I believe the income level everyone is talking about is either line 37 AGI..or maybe line 43 taxable income..   that is the amount you are taxed on.
> 
> just in reading a form from IRS last year on a tax calculation that was wrong the are the lines they are most focused on.
> 
> ...



I think the correct number is line 43, taxable income.  All they are going to do is adjust the tax rate schedule.  That applies to line 43.

By the way, the phase out of deductions/exemptions is offset by the alternative minimum tax.  The alternative minimum tax increases the taxes for income earners between $250-$400k.   By phasing out their deductionsand exemptions, all it does is make it closer to the alternative minimum tax.


----------



## pacodemountainside (Jan 5, 2013)

OP:  

 Following is answer to your question from "Tax Policy Center; Senate  Summary of tax bill!

39.6% rate-taxable income(43)

Capital gains and dividends at  20%-taxable income(43)

Investment income  3.8%-AGI(37)

 Exemption phase out and Pease-AGI(37)

Tax on social security benefits- AGI as adjusted

There is detailed chart about half way in article you will have to enlarge to read.

http://online.wsj.com/article/SB100...65726040.html?KEYWORDS=congressional+tax+deal


----------



## easyrider (Jan 5, 2013)

MDET tax is now showing up on reciepts.  



http://www.theblaze.com/stories/why...n-receipts-from-sporting-goods-giant-cabelas/

I just bought some items at Cabellas and didn't look at the bottom line for this tax. Is this tax on all goods sold ? My accountant hasnt said anything to me about collecting it.

http://www.snopes.com/politics/taxes/medicaldevice.asp I guess its true.

Bill


----------



## am1 (Jan 5, 2013)

easyrider said:


> MDET tax is now showing up on reciepts.
> 
> 
> 
> ...



I am a fan of consumption tax. In theory less paperwork.


----------

