Broker Check

January, 30, 2001

Happy New Year!

The following tax rates and amounts are effective for 2001:

  1. OASDI rate remains at 6.2% but wage base rises to $80,400 from $76,200
  2. Medicare rate remains at 1.45% and there is no wage limit.
  3. The maximum retirement earnings one can earn before social security benefits will start to be withheld is $10,680 for those under age 65.  There is no limit on earnings for 65 and older.  The retirement age for social security continues to rise this year.  Those turning 62 this year are affected.  They will get reduced benefits if they start receiving payments before they attain age 65 and four months .  Ultimately, anyone born after 1959 won`t get full benefits before age 67.
  4. Personal exemptions rise to $2,900 from $2,800 and exemptions will begin to phase out at $199,450 of AGI for couples.  For singles, $132,950.  Taxpayers in the phaseout zones face higher marginal income tax rates.  Effect is to add .85% per exemption for taxpayers in the 36% tax bracket.  Filers in the 39.6% bracket effectively pay an extra .94% per exemption.  Adds 4.7% to the effective marginal rate for a top bracket family of five.
  5. Standard deduction will increase to $7,600 for marrieds in `01, up from $7,350.  For children age 14 who must file returns, it rises to $750 from $700.  Can be as high as $5,300 if they have earned income.
  6. Income tax rates for `01 are the same as 1998, 15%, 28%, 31%, 36%, 39.6% but brackets have been adjusted for inflation.  Those in the 15% bracket receive a reduced rate on gains in 2001.  Their 10% rate on gains falls to 8% for stock held more than five years and sold after 2000.  The 10% rate remains for bottom bracket individuals who take profits on shares owned at least one year but not more than five.  Stocks purchased after 2000 can have an 18% rate for individuals in the 28% tax bracket and above.  Shares must be owned for five years.  So the earliest the 18% rate could apply is for sales made in 2006.  Stock bought before 2001 could qualify for the lower rate as well, but holders must pay an up front toll charge to obtain the rate cut.  Must elect to treat pre 2001 shares as sold on 1/2/01 and pay tax on resulting gain.  Any losses on deemed sale is ignored.  Election must be made by the due date of the 2001 tax return plus extensions.  Consider this for stocks with little or no appreciation as of January 2, 2001. 
  7. Federal unemployment Tax Rate (FUTA) remains at .8%.
  8. IRS interest rate on refunds remains at 8% and 9% on taxes owed.
  9. Alternative Minimum Tax rate remains at 26% on first $175,000 of income and 28% over that.  More people will pay this since brackets and exemptions are not indexed and there are fewer deductions allowed.
  10. Back up withholding rate remains at 31%.
  11. 401(k) pay-in limitation remains at $10,500.
  12. 403(b) contribution limit remains at $10,500.
  13. 457 contribution rises to $8,500, up from $8,000.
  14. Maximum level of pay on which pay-ins to plans can be based upon remains at $170,000, with the maximum pay-in for defined contribution plans rising to $35,000 from $30,000.
  15. Business meal and entertainment deductibility remains at 50%.  Standard business mileage allowance rises to 34.5? per mile, up from 32.5? .  Medical travel rate to 12? from 10? per mile.
  16. Self-employeds and owners of corporations can deduct 60% of medical insurance premiums as an adjustment to arrive at adjusted gross income, the same as in 2000.
  17. Federal estate tax exemption remains at $675,000.
  18. New York State disability Insurance employee percentage is .5% of wages but not more than 60? per week.
  19. Threshold for deposit requirements increases from $500 to $1,000.
  20. Maximum amount of rapid depreciation for small businesses rises to $24,000, up from $20,000 in `00.
  21. Simplified per diem allowances are up slightly for `01.
  22. Parents get tax credits for children under 17, $500 per child.  Phaseout for marrieds with AGI exceeding $110,000 and single over $75,000.
  23. Phaseout for IRA deductions start at $53,000 up from $52,000 and end at $63,000 for couples, up from $62,000, and increase of $1,000.  Phaseout singles is from $33,000 to $43,000.
  24. More interest on some education loans is deductible in `01, up to $2,500 from $2,000.
  25. Eligible portion of long term care premium rises for 2001, up to $2,860 for those age 70 and older, $2,290 between ages 60 and 70, $860 between ages 50 and 60, $430 from 40 to 50 and $230 for age 40 and under, deductible as medical expenses.  It is the age at the end of 2000 that counts.  Daily limits for payments is $200, up from $190.
  26. Medicare Part B premium rises to $50, up from $45.50 in 2000.
  27. Luxury care tax drops to 4% for autos costing over $38,000.
  28. The maximum amount of compensation an employee may elect to defer under a SIMPLE plan rises to $6,500 from $6000.
  29. The nanny tax threshold rises to $1,300 for `01, a $100 increase.  No social security tax is due for domestics paid $1,300 or less this year.  It is not indexed for inflation.  FUTA is due whenever a domestic employee is paid $1,000 or more in a calendar quarter in the current or prior year.
  30. The exemption from the Kiddie Tax for 2001 will be $1,500, up from $1,400.  A parent will be able to elect to include a child`s income on the parent`s return for 2001 if the child`s income is more than $750 and less than $7,500 (up from $700 and $7,000 in 2000).

As always, if you have any questions about these or any other tax or financial matters, please call me.