Broker Check

January 26, 2004

Happy New Year!

    The following tax rates and amounts are effective for 2004:

  1. OASDI rate remains at 6.2% but wage base rises to $87,900 from $87,000.
  2. Medicare rate remains at 1.45% and there is no wage limit.
  3. The maximum earnings one can earn before social security benefits will start to be withheld is $30,720 for those under age 65 and four months.  Those between age 62 and age 65 and four months can earn $11,640.  For each $2 earned above that, $1 of benefits is lost. There is no limit on earnings for those older than 65 and four months. 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 ten months. Ultimately, anyone born after 1959 will not get full benefits before age 67.  Social Security benefits will rise 2.1%.
  4. Personal exemptions rise to $3,100 from $3,050 and exemptions will begin to phase out at $214,050 of AGI for couples. For singles, $142,700. Taxpayers in the phaseout zones face higher marginal income tax rates. The effect is to add .84% per exemption for taxpayers in the 33% tax bracket.  Filers in the 35% bracket effectively pay an extra .89% per exemption. This adds 3.56% to the effective marginal rate for a top bracket family of four.
  5. Standard deduction will increase to $9,700 for marrieds in ‘04, up from $7,950. For children age 14 who must file returns, it remains at $750. Can be as high as $4,750 if they have earned income.
  6. Income tax rates are reduced for ‘04 to 10%, 15%, 25%, 28%, 33% and 35%. Those in the 15% or lower brackets receive a reduced rate on gains in 2004. Their 10% rate on gains falls to 5% for stock sold after May 6, 2003.
  7. Federal unemployment Tax Rate (FUTA) remains at .8%.
  8. IRS interest rate on refunds declines to 5% and 6% 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 30%.
  11. 401(k), 403(b) and 457 contribution pay-in limitation rises to $13,000, up from $12,000, with $3,000 more for employees 50 and older.
  12. Maximum level of pay on which pay-ins to plans can be based upon rises to $205,000, with the maximum pay-in for defined contribution plans rising to $41,000 from $40,000. Percentage of compensation that can be put in remains at 100%. Profit Sharing percentage remains at 25%.
  13. Business meal and entertainment deductibility remains at 50%. Standard business mileage allowance rises to 37.5¢ per mile up from 36¢. Medical travel rate rises to 14¢ from 12¢ per mile. Charitable driving rate is still 14¢ a mile.
  14. Federal estate tax exemption rises to $1,500,000 from $1,000,000. Maximum rate drops to 48% from 49%. Lifetime gift tax excemption remains at $1,000,000.
  15. Maximum amount of equipment eligible for expense election for small businesses rises to $102,000.
  16. Simplified per diem allowances are up slightly for ‘04.
  17. Phaseout for IRA deductions start at $65,000 and end at $75,000 for couples. Phaseout for singles is from $45,000 to $55,000. Contribution limit remains at $3,000. If 50 or older, can contribute up to $3,500.
  18. The interest exclusion on U.S. Savings Bonds redeemed to pay qualified higher  education expenses starts to phase out at AGI above $89,750 for marrieds.
  19. Eligible portion of long term care premium rises for 2004, up to $3,250 for those age 70 and older, $2,600 between ages 60 and 70, $980 between ages 50 and 60, $490 from 40 to 50 and $260 for age 40 and under, deductible as medical expenses. It is the age at the end of 2003 that counts. Daily limits for payments is $230, up from $220.
  20. Medicare Part B premium rises to $66.60, up from $58.70 in 2003.
  21. The maximum amount of compensation an employee may elect to defer under a SIMPLE plan rises to $9,000 from $8,000. If employee is born before ‘53, can contribute $10,500.
  22. The nanny tax threshold remains at $1,400.  No social security tax is due for domestics paid $1,400 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.
  23. The exemption from the Kiddie Tax for 2004 rises to $1,600 from $1,500. A parent will be able to elect to include a child’s income on the parent’s return for 2003 if the child’s income is more than $800 and less than $8,000.
  24. Low and middle income savers can still get a tax credit of up to $1,000 for contributions made to IRAs and qualified plans. Credit disappears for MFJ when AGI hits $50,000, $25,000 for singles.
  25. Adoption tax credit rises to 100% of up to $10,300 of expenses. Phaseout starts at $155,860 AGI.
  26. Hope and Lifetime Learning credit  phaseout for MFJ starts at $85,000, $42,000 for singles.
  27. Gift tax exclusion remains at $11,000 per donee for gifts made in 2004. Kiplinger Tax Letter 1/2/04
         As always, if you have any questions about these or any other matters, do not hesitate to call me. 
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