New changes to the tax code this year could end up costing you more, especially for the country's highest earners. NY1's Tara Lynn Wagner filed the following "Money Matters" report.
We all know that the tax code is complicated, and every year, there are changes. This year, a few of those changes may end up costing you money.
"Many people are going to be hit with a tremendous amount of taxes this year compared to last year," says Alan D. Kahn, a certified public accountant.
For one thing, the country's highest earners will see their tax rate jump from 35 percent to 39.6 percent. That's for single people making over $400,000 or $450,000 for married couples filing jointly.
That's not the only increase. While all taxpayers have 1.45 percent taken out of their paychecks for Medicare taxes, Kahn says that high earners will now find themselves paying an additional Medicare tax of .9 percent.
"So that will bring your surtax from 1.45 to 2.35 percent. That's a huge amount," Kahn says.
That's on income above $200,000 for single people or $250,000 for married couples. Now, if your individual salary is over $200,000, then your employer should have been taking this money out of your paychecks already. But if you have two sources of income, neither of which triggers the withholding automatically, Kahn says that "when you file your taxes, you'll have to make that up."
To avoid that situation going forward, the IRS suggests you make estimated tax payments or request additional withholdings from your paychecks.
That same threshold of $200,000 for a single taxpayer or $250,000 for married filing jointly will determine whether or not you may be hit by the other big change - the Net Investment Income Tax, also called the Medicare surtax.
"The way it works is, your interest income, your dividend income, your capital gains income could now be subject to this new 3.8 percent tax," says John Vento, a certified public accountant.
These may sound like the same thing, but they're not. One applies to the money you earn. The other applies to the money your investments earn, and you may be hit by both. The good news is that both can be reduced with a little strategic tax planning.
"Knowing a little bit about the tax law and putting yourself in the right position very often will help you minimize that tax, as well as any other tax," Vento says.
For more information on these changes, visit www.irs.gov.