January 31, 2008 Happy New Year! Only One Presidential Candidate Plans to Cut the Federal Bureaucracy—Hizzoner Rudolph Guliani IBD 6/26/07 The following tax rates and amounts are effective for 2008: OASDI rate remains at 6.2% but wage base rises to $ 102.000 from $97,500. Medicare rate remains at 1.45% and there is no wage limit. The maximum earnings one can earn before social security benefits will start to be withheld is $36,120 for those under age 66. Those between age 62 and age 66 can earn $13,560. For each $2 earned above that, $1 of benefits is lost. There is no limit on earnings for those older than 66 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 2.3%. Personal exemptions rise to $3,500 and exemptions will begin to phase out at $239,950 of AGI for couples; for singles, $159,950. Taxpayers in the phaseout zones face higher marginal income tax rates. Personal exemptions do not count for Alternative Minimum Tax purposes. Standard deduction will rise to $10,900 plus $1,050 for each spouse 65 or older, up from $10,700. For children age 14 who must file returns, it remains at$850 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 2008. Dividends are taxed at 15%. 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. Back up withholding rate remains at 30%. 401(k), 403(b) and 457 contribution pay-in limitation remains $15,500, with $5,000 more for employees 50 and older. Ceiling on Simple plans remains $10,500 but folks age 50 or older can put in an additional $2,500 in 2008. Maximum level of pay on which pay-ins to plans can be based upon rises to $230,000 from $225,000, with the maximum pay-in for defined contribution plans rising to $46,000 from $45,000. Percentage of compensation that can be put in remains at 100%. Profit Sharing percentage remains at 25%. Benefit limit rises to $185,000, from $180,000. Business meal and entertainment deductibility remains at 50%. Standard business mileage allowance is raised to 50.5¢ per mile, up from 48.5¢. Medical travel and moving expense rate is lowered to 19¢ from 20¢. Charitable driving rate is still 14¢ a mile. Federal estate tax exemption remains at $2,000,000. Maximum Estate and Gift rate remains at 45%, goes to $3,500,000 in 2009. Lifetime gift tax exemption remains at $1,000,000. Maximum amount of equipment eligible for expense election for small businesses rises to $128,000, from $112,000. Simplified per diem allowances are up slightly for post September 30, 2007 travel. Phaseout for IRA deductions start at $85,000 and ends at $105,000 for couples. Phaseout for singles is from $53,000 to $63,000. Contribution limit rises to $5,000. If 50 or older, can contribute up to $6,000. 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. Eligible portion of long term care premium rises to $3,850 for those age 71 and older, $3,080 between ages 60 and 70, $1,150 between ages 50 and 60, $580 from 40 to 50 and $310 for age 40 and under, deductible as medical expenses. Medicare Part B premium rises to $96.40, up from $93.50. The nanny tax threshold rises to $1,600, up from $1,500. No social security tax is due for domestics paid $1,600 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. The exemption from the Kiddie Tax for 2008 rises to $1,800. A parent will be able to elect to include a child’s income on the parent’s return for 2008 if the child’s income is more than $850 and less than $8,500 and the child needs to be less than 20. If earned income of child is less than ½ the support, age rises to 24. If Kiddie Tax applies, a child’s earned income over $1,800 is taxed at the parents’ marginal rate 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 $53,000, $26,500 for singles. Adoption tax credit rises to 100% of up to $11,650 of expenses. Phaseout starts at $174,730 AGI. Hope and Lifetime Learning credit phaseout for MFJ starts at $96,000, $48,000 for singles. The maximum Hope credit rises to $1,800 from $1,650 and the credits are doubled for those attending college in the Hurricane Katrina area. Gift tax exclusion remains at $12,000 per donee for gifts made in 2008. The limit on deducting payins to Health Savings Accounts rises to $5,800 for family coverage and $2,900 for individual coverage. Account owners born before 1954 can put in an additional $800. Ceiling on out of pocket cost rises to $11,200 for family coverage and $5,600 for individual coverage. IRAs can now be rolled into HSAs. There may be a 10% credit for energy saving improvements up to a maximum credit of $500. See our August 2005 Newsletter for details. The up to $250 above the line deduction for teachers’ out of pocket classroom related expenses remains through 2008. Companies can deduct 6% of income from U.S production activities. U.S. taxpayers working abroad have a higher exclusion, $87,600. Itemizers can deduct private mortgage insurance premiums in 2008 if the policy was issued after 2006. 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. Volunteer Firefighters and Emergency Medical Workers get a break. Any local and real estate tax rebates they receive are not taxable. Retired Public Safety Officers can exclude from gross income taxes up to $3,000 for qualified health insurance premiums as of 2007. If you are a retired law enforcement officer or firefighter, then you will need to separately inform us of your health insurance premium payments. Late AMT Patch Legislation will cause a delay at the IRS in processing tax returns that have Education Credits, Residential Energy Credits, Child or Dependent Care expenses, Mortgage interest credit, or the District of Columbia First Time Homebuyers Credit until February 11, 2008. NY State Middle Class STAR Rebate Program New York real property owners who received a STAR rebate in 2007 from their school tax bills should declare the rebate as a reduction of their real estate taxes paid. New York City School Tax Credit for joint filers with incomes of $250,000 or less will rise to $310 from $290. It will rise to $335 in 2009 and thereafter. Other filing statuses will be one half the amount. For taxpayers with income of more than $250,000 the credit amounts remain at $230 for joint filers and $115 for all others. For each tax year beginning on or after January 1, 2010 the more than $250,000 income determination will be adjusted for inflation. 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 !!