High Income Taxpayers

A Tax Increase on the Highest Incomes. Taxpayers (including those who receive income through partnerships and S corporations) who earn more than $418,400 ($470,700 for married taxpayers filing jointly) have a marginal tax rate of 39.6%.

Additional Medicare Tax of 0.9% on Wages over $200,000 (single) or $250,000 (joint). This is tricky because employers will withhold this additional tax based on each taxpayer’s wages; therefore, joint filers might not have it withheld, but it will be due with your return.

Restoration of the Full Rate for Social Security and Medicare Taxes for all Wage Earners including those Self-Employed. Employees’ portion of the Social Security payroll tax will be 6.2% on income up to $127,200.

Taxpayers who have Net Investment Income Could Face a 3.8% Surtax on Categories of Certain Unearned Income to the extent certain threshold amounts of income exceed $200,000 (single) or $250,000 (joint). This tax was already slated to go into effect as a result of health care reform.

Higher Capital Gains Rates for Top Earners. The top earners who are subject to the new 39.6% top rate on income now face a 20% rate on capital gains and dividends, up from 15%.

  • Taxpayers in the 10% and 15% income brackets have a zero capital gains rate
  • Taxpayers in the middle will continue to pay 15%. (but should see next paragraph)
  • Higher Capital Gains Rates for Taxpayers with Modified Adjusted Gross Income over $250,000 (joint) or $200,000 (single) will be 18.8%.

    Higher Personal Exemptions and Itemized Deductions Phase-out Levels. The phase-out levels for personal exemptions and itemized deduction have been raised to $313,800 for married couples and surviving spouses and $287,650 for individuals. Itemized deductions for this group of taxpayers will be reduced by 3% of the amount by which the taxpayers adjusted gross income exceeds the applicable threshold.

    Permanent AMT Inflation Indexing. The alternative minimum tax originally was intended to prevent high-income individuals from avoiding taxes. The AMT exemption for tax year 2016 will be $54,300 ($84,500 for married couples filing jointly), up from $53,900 and $83,800, respectively, last tax year.