January 8, 2007

Happy New Year!

The following tax rates and amounts are effective for 2007:

1. OASDI rate remains at 6.2% but wage base rises to $ 97,500 from $94,200.
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 $34,400 for those under age 65 and ten months. Those between age 62 and age 65 and ten months can earn $12,960. For each $2 earned above that, $1 of benefits is lost. There is no limit on earnings for those older than 65 and eight 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 66. Ultimately, anyone born after 1959 will not get full benefits before age 67. Social Security benefits will rise 3.3%.
4. Personal exemptions rise to $3,400 and exemptions will begin to phase out at $234,600 of AGI for couples; for singles, $156,400. Personal exemptions do not count for Alternative Minimum Tax purposes. 
5. Standard deduction will rise to $10,700 plus $1,050 for each spouse 65 or older, up from $10,300. For children age 14 who must file returns, it remains at $850. 
6. Income tax rates are remain at 10%, 15%, 25%, 28%, 33% and 35%. Those in the 15% or lower brackets receive a 5% rate on gains. 15% bracket is doubled for marrieds over singles for 2005-2007.  Dividends are taxed at 15%.
7. Alternative Minimum Tax rate remains at 26% on first $175,000 of income for marrieds for 2006-2009 and 28% over that. More people will pay this since brackets and exemptions are not indexed and there are fewer deductions allowed. Exemptions remain constant.
8. Back up withholding rate remains at 30%.
9. 401(k), 403(b) and 457 contribution pay-in limitation rises to $15,500, up from $15,000, with $5,000 more for employees 50 and older.
10. Maximum level of pay on which pay-ins to plans can be based upon rises to $225,000 from $220,000, with the maximum pay-in for defined contribution plans rising to $45,000 from $44,000. Percentage of compensation that can be put in remains at 100%. Profit Sharing percentage remains at 25%.  Benefit limit rises to $180,000, from $175,000.
11. Business meal and entertainment deductibility remains at 50%. Standard business mileage allowance is raised to 48.5¢ per mile, up from 44.5¢.  Medical travel rate is raised  to 20¢, up from 18¢ per mile. Charitable driving rate is still 14¢ a mile, 32¢ if related to Katrina relief.
12. Federal estate tax exemption remains at $2,000,000. Maximum Estate and Gift rate drops to 45% from 46%. Lifetime gift tax excemption remains at $1,000,000.
13. Maximum amount of equipment eligible for expense election for small businesses rises to $112,000, from $108,000.
14. Simplified per diem allowances are up slightly for ‘07.
15. Phaseout for IRA deductions start at $83,000 and ends at $103,000 for couples. Phaseout for singles is from $52,000 to $62,000. Contribution limit remains at $4,000. If 50 or older, can contribute up to $5,000.
16. The interest exclusion on U.S. Savings Bonds redeemed to pay qualified higher education expenses starts to phase out at AGI above $98,400 for marrieds.
17. Eligible portion of long term care premium rises to $3,680 for those age 71 and older, $2,950 between ages 60 and 70, $1,110 between ages 50 and 60, $550 from 40 to 50 and $290 for age 40 and under, deductible as medical expenses.
18. Medicare Part B premium rises to $93.50, up from $88.50.
19. The nanny tax threshold remains at $1,500, up from $1,400. No social security tax is due for domestics paid $1,500 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.
20. The exemption from the Kiddie Tax for 2007 increases to $1,700.  A parent will be able to elect to include a child’s income on the parent’s return for 2007 if the child’s income is more than $850 and less than $8,500.
21. 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 marrieds when AGI hits $52,000, $26,000 for singles.
22. Adoption tax credit rises to 100% of up to $11,390 of expenses. Phaseout starts at $170,80 AGI.
23. Hope and Lifetime Learning credit phaseout for MFJ starts at $94,000, $47,000 for singles.  The maximum Hope credit remains at $1,650 and the credits are doubled for those attending college in the Hurricane Katrina area.
24. Gift tax exclusion remains at $12,000 per donee for gifts made in 2007.
25. The limit on deducting payins to Health Savings Accounts rises to $5,650 for family coverage and $2,850 for individual coverage. Account owners born before 1953 can put in an additional $800. Ceiling on out of pocket cost rises to $11,000 for family coverage and $5,500 for individual coverage.  IRAs can now be rolled into HSAs.
26. There is a 10% credit for energy saving improvements up to a maximum credit of $500.  See our August 2005  Newsletter for details.
27. The up to $250 above the line deduction for teachers’ out of pocket classroom related expenses is extended through 2008.
28. Companies can deduct 6% of income from U.S. production activities, up from 5%.
29. U.S. taxpayers working abroad have a higher exclusion, $85,700.
30. Itemizers can deduct private mortgage insurance premiums in 2007 if the policy was issued after 2006.
31. Federal minimum wage is $5.15, food service employees, $2.13. New Jersey and New York minimum wage is $7.15. New York tipped employees, $4.29.  Connecticut minimum wage is $7.65, tipped employees, $5.41.  Pennsylvania minimum wage is $5.65 with tipped employees $2.83.
    
    As always, if you have any questions about these or any other matters, do not hesitate to call me. 
    
    Remember, We’re Here For You !!