7 Key Changes to the 1040 Tax Form

Time marches on, and you’ll soon be receiving your 2013 W-2 and 1099s, if you haven't already. So it’s not too early to start thinking about putting together your Form 1040 for last year. As you do, take note of the seven following key federal income tax changes that took effect in 2013:

New Higher Tax Rates for Some

For most people, the 2013 federal income tax rates are the same as for 2012: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent. However, the American Taxpayer Relief Act increased the maximum rate for 2013 to 39.6 percent. That rate only affects singles with taxable income above $400,000, married joint-filing couples with income above $450,000 and heads of households with income above $425,000.

For most individuals, the 2013 federal income tax rates on long-term capital gains and dividends are also the same as for 2012: either 0 percent or 15 percent. However, the new law raised the maximum rate for 2013 to 20 percent for singles with taxable income above $400,000, married joint-filing couples with income above $450,000 and heads of households with income above $425,000. Folks with 2013 taxable income below these levels will pay a 15 percent federal rate on long-term gains and dividends or 0 percent for gains and dividends that would otherwise fall within the 10 percent or 15 percent brackets.

(MORE: A Guide to Self-Employment Retirement Plans)

New Medicare Surtax on Investment Income

Starting in 2013, if you have a sizable income, all or part of your net investment income, including long-term capital gains and dividends, can potentially get socked with an additional 3.8 percent “Medicare contribution tax.” As a result, the maximum federal rate on long-term gains for 2013 is actually 23.8 percent (versus the 15 percent maximum rate on 2012 returns). The new 3.8 percent Medicare tax only applies if your adjusted gross income (AGI) exceeds: $200,000 if you’re unmarried, $250,000 if you’re a married joint filer or $125,000 if you use "married filing separately" status.

(MORE: 7 Secrets of Highly Effective Retirement Savers)

Specifically, the 3.8 percent Medicare tax hits the lesser of your net investment income or the amount of AGI in excess of the applicable threshold. Net investment income includes interest, dividends, royalties, annuities, rents, income from passive business activities, gains from assets held for investment (like stocks and bonds), the taxable portion of personal residence gains and income and gains from the business of trading in financial instruments or commodities. Income and gains from assets held for business purposes are not subject to the 3.8 percent tax.

For example, a married joint-filing couple with 2013 AGI of $295,000 and $60,000 of net investment income would owe the 3.8 percent tax on $45,000 (the amount of AGI over the $250,000 threshold for joint filers). If the same couple had AGI of $350,000, they would owe the 3.8 percent tax on $60,000 (the entire amount of their net investment income). To figure out if you owe the new 3.8 percent Medicare surtax, fill out IRS Form 8960 (Net Investment Income Tax).

New Medicare Surtax on Salaries and Self-Employment Income

Before 2013, the Medicare tax on salary and/or self-employment income was a flat 2.9 percent. If you were an employee, 1.45 percent was withheld from your paychecks and the other 1.45 percent was paid directly by your employer. If you were self-employed, you paid the whole 2.9 percent yourself.

Starting in 2013, however, an extra 0.9 percent Medicare tax is charged on salary and/or self-employment income above $200,000 for an unmarried individual, combined salary and/or self-employment income above $250,000 for a married joint-filing couple and salary and/or self-employment income above $125,000 for those who use "married filing separately" status.

To discover whether you owe the new 0.9 percent Medicare surtax, fill out IRS Form 8959 (Additional Medicare Tax).

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New Personal and Dependent Exemption Deduction Phase-Outs

By MarketWatch