This is the first blog post of a series of posts for the clients and friends of Ashland Financial Solutions. Posts will address items of interest in the sphere of personal finance, and can range from tax and financial planning issues, to investment/market updates and Economic insights.

Fiscal Cliff January 2013We've managed to avoid the fiscal cliff. The American Tax Relief Act of 2012 was approved by both houses by January 1, 2013 and signed into law by President Obama on January 2, 2013.

I'm generally happy with the fix. Some are grumbling over the loss of the payroll tax holiday, but with the Social Security system straining to continue payments to the retiring baby boomers, it makes sense to bring that rate back up to regular levels.

The Act makes permanent the Bush tax rates for those with lower incomes, while allowing the Bush tax rates expire for high income tax payers (generally those with incomes above $400,000 single and $450,000 married filing joint). It also brings back limits on exemptions and itemized deductions for these tax payers.

Income tax and Capital Gains/Qualified Dividend tax rates remain at 2012 levels for those with incomes at or below $400,000 single and $450,000 MFJ. Tax increases for higher income earners are as follows:


2013 Marginal Tax Rate

2013 Capital Gains &
Dividend Rate

Over $400,000 single
Over $450,000 MFJ

(up from 35% in 2012)

(up from15% in 2012




The one tax provision that will affect lower income working taxpayers is the expiration of the payroll tax holiday. Wage earners normally pay FICA taxes to fund Social Security and Medicare. Employers match these payments. For the past few years, most wage earners have enjoyed a 2% reduction in the Social Security portion of their FICA taxes. This holiday ends in 2013, when wage earners go back to paying their full portion at the rate of 6.2%. (Employers never got a reduction–they've been paying their 6.2% match.)

The holiday is over for self-employed persons as well – in 2013, self-employment taxes will return to their regular rate of 15.3%, up from the reduced rate of 13.3%.

Other provisions of the Act include:

Estate Tax: A tax free estate is now $5,250,000 for 2013 and indexed for inflation.

Alternative Minimum Tax: This tax is now permanently indexed for inflation–no more waiting for an annual temporary fix.

In addition, there are two new tax provisions going into effect in 2013 as a result of legislation passed in 2010, in part to shore up the Medicare system. Higher income tax payers and investors will be impacted as follows:

Medicare payroll tax hike: Those in wage-earning jobs earning $200,000 (single)/$250,000 (MFJ) or higher will see an additional 0.9% tax on those wages toward Medicare.

Medicare Surcharge Tax on Net Investment Income: There will be a 3.9% tax on the lesser of the amount of income earned over a certain threshold ($200,000 single/$250,000 MFJ in 2013) or the amount of net investment income. This tax only applies to those with higher incomes. Investment income is taxable interest, dividends and long & short term capital gains, annuity income, passive rental income and royalties.

Social Security Account Access

You can now access your Social Security Retirement Benefit records online. Go to the Social Security website ( and click on the link titled "Get Your Social Security Statement Online" – you’ll see it on the left hand side of the page. Follow the directions to create an account.