While the American Taxpayer Relief Act of 2012 enacted January 2, 2013 brought permanency to the individual rate structure, the addition of two new taxes for 2013 and varying phase-out levels for certain rules, some high income individuals will be puzzled as to what their tax rate really is. For example, while a single filer with over $400,000 of taxable income for 2013 reaches the top 39.6% bracket, if their next dollar of income is a capital gain or qualified dividend, it is taxed at 20%. They would likely also be subject to the new Net Investment Income Tax so it would really be taxed at 23.8%.
For individuals subject to the new Additional Medicare Tax, they will have employment taxes reported on their income tax form. That will be something new for employees. If they tax their total Form 1040 tax liability divided by their taxable income, they'll get a distorted number because a small portion of their total employment taxes would be included.
I've got more on this question of "what is my rate" in a short article from the AICPA Tax Insider - What's my rate?(12/12/13) - please take a look. What do you think?
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