>>>News Center >>2013 US Tax Update               


For 2013 tax year, tax law changes will affect taxpayers with high income because of the former highest tax bracket 39.6%, long-term capital gain tax rate 20%, phase-out of itemized deduction and personal exemption being reinstated and new Medicare Surtax coming to play. 2013 tax liability will be increased for taxpayers who meet the income threshold. The tax increase proportion depends on taxpayer¡¯s income level, earned and investment income amount and foreign tax payment amounts for overseas taxpayers.

The following key points are listed for your reference:
1) 39.6% income tax bracket applies to taxpayers with modified taxable income of:
- $400,000 (Single);
- $425,000 (Head of Household);
- $450,000 (Married Filing Jointly);
- $225,000 (Married Filing Separately)

2) Long-term capital gain will be taxed at 20% instead of 15% of prior year for taxpayers with high income at above level.

3) Itemized deduction and personal exemptions will be phased out for taxpayers with income of:
- $250,000 (Single);
- $270,000 (Head of Household);
- $300,000 (Married Filing Jointly);
- $150,000 (Married Filing Separately)
Besides, medical expenses now have to be more than 10% of taxpayers¡¯ AGI for taxpayers under 65 to be deductible.

4) New additional Medicare Surtax applies to taxpayers with high earned income and high modified Adjusted Gross Income (AGI adding back exclusions etc.) :
a) 0.9% Medicare Surtax on employment / earned income in excess of:
- $200,000 (Single);
- $200,000 (Head of Household);
- $250,000 (Married Filing Jointly);
- $125,000 (Married Filing Separately)

b) 3.8% Medicare Surtax on investment income for taxpayers with modified AGI in excess of:
-$200,000 (Single);
- $200,000 (Head of Household);
- $250,000 (Married Filing Jointly);
- $125,000 (Married Filing Separately)

For 2013 tax rate, standard deductions and exemptions, please check out http://1040-cn.com/forms_publications.html.

Other tax update effective for taxpayers overseas:

1)2013 Foreign Earned Income Exclusion and Foreign Housing Exclusion:

- Maximum Foreign Earned Income Exclusion (FEIE) has been increased
to $97,600.
- Foreign housing expense limit for cities other than the specified high-cost localities is $29,280;
- Unexcluded foreign housing expense-base amount is $15,616;
- 2013 foreign housing expense limit for living in high-cost cities of Shanghai, Hong Kong and Beijing remained the same as last year. Maximum foreign housing exclusions are set as following:

Location                     Expense limit       Maximum Exclusion
Beijing:                     $71,200            $55,584
Shanghai:                    $57,001            $41,385
Hong Kong:                   $114,300           $98,684

Use Form 2555 to report your foreign earned income and foreign housing exclusion. You can download a blank from the IRS website: http://www.irs.gov/pub/irs-pdf/f2555.pdf, and refer to the filing instructions: http://www.irs.gov/pub/irs-pdf/i2555.pdf.

2)Alternative Minimum Tax (AMT)
Higher AMT exemptions have been reinstated and personal credits can be used to offset AMT.

For more 2013 US tax updates, please check IRS website for:
¡° What¡¯s new¡±? for more US tax updates:

IRS Publication 17 ( http://www.irs.gov/pub/irs-pdf/p17.pdf ).

Tax Guidance for taxpayers living abroad:

For tax guidance for taxpayers living abroad in IRS Publication 54 and IRS website: http://www.irs.gov/faqs/content/0,,id=199953,00.html.

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State Administration of Taxation
Beijing Local Taxation Bureau
Shanghai Taxation Bureau