January 24, 2013 HAPPY NEW YEAR!! The following tax rates and amounts are effective for 2013: 1. OASDI rate for employees returns to 6.2% on January 1, 2013. The wage base rises $3,600 to $113,700 from $110,100. 2. Medicare rate remains at 1.45%for employers. The employee portion is 1.45%, and a 0.9% Medicare surtax on earned income will be calculated on single filers with wages over $200,000 and married filers with wages over $250,000 as part of health care reform. 3. There is a 1.7% cost of living hike for Social Security beneficiaries this year. The maximum earnings one can earn before social security benefits will start to be withheld is $40,080 for those under age 66. Those between age 62 and age 66 can earn $15,120. For each $2 earned above that, $1 of benefits is lost. There is no limit on earnings for those older than 66. 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. 4. Personal exemptions rise $100 to $3,900. Personal exemptions will phase out for single filers with income over $250,000 and joint filers with income over $300,000. 5. Standard deduction rises to $12,200 plus $1,200 for each spouse 65 or older. For children age 14 who must file returns, it rises to $1,000. 6. Income tax rates will remain at 10%, 15%, 25%, 28%, 33%, and 35%, but the highest bracket will increase from 35% to 39.6% for single taxpayers earning over $400,000 or married taxpayers earning over $450,000. The long term capital gains rate and qualified dividend remain at their 2012 levels for single taxpayers earning less than $400,000 and married taxpayers earnings less than $450,000. For those earning more than the thresholds, the tax rate has increased from 15% to 20%. Under the 2010 health care law, the new 3.8% Medicare net investment income tax is effective on January 1, 2013 for single taxpayers earning more than $200,000 and married taxpayers earning more than $250,000. 7. Alternative Minimum Tax rate remains at 26% on the first $175,000 of income for marrieds and 28% over that. Exemptions from the minimum tax will rise in 2013 and thereafter, based upon inflation. 8. Back up withholding rate declines 2% to 28%. 9. 401(k), 403(b), and 457 contribution pay-in limitation rises to $17,500, with $5,500 additional for employees 50 and older. Ceiling on SIMPLE plans rises to $12,000 but folks age 50 or older can put in an additional $2,500 in 2013. 10. Maximum level of pay on which pay-ins to plans can be based upon rises to $255,000 with the maximum pay-in for defined contribution plans rising to $51,000. Percentage of compensation that can be put in remains at 100%. Profit Sharing percentage remains at 25%. Benefit limit rises to $205,000. 11. Business meal and entertainment deductibility remains at 50%. 12. Federal estate and gift tax exemption increases to $5,250,000. The maximum Estate and Gift rate rises to 40%. The spouse portability election was made permanent. 13. Maximum amount of equipment eligible for expense election for small businesses is $500,000 of assets with useful lives of 20 years or less. 50% bonus depreciation remains. 14. Simplified per diem allowances are up slightly. 15. Phaseout for IRA deductions start at $95,000 and ends at $115,000 for couples. Phaseout for singles is from $59,000 to $69,000. If only one spouse is covered by a plan, the phaseout zone for deducting a payin for the spouse who is not covered begins at $178,000 of AGI and ends at $188,000. Contribution limit remains at $5,500. If 50 or older, can contribute up to $6,500. 16. The interest exclusion on U.S. Savings Bonds redeemed to pay qualified higher education expenses starts to phase out at AGI above $112,050 for marrieds. 17. Eligible portion of long term care premium rises to $4,550 for those age 71 and older, $3,640 between ages 60 and 70, $1,360 between ages 50 and 60, $680 from 40 to 50 and $360 for age 40 and under, deductible as medical expenses. Limit for tax-free payouts rises to $320 per day. 18. Medicare Part B premium rises to $104.90 for those singles with AGI under $85,000, maximum premium rates rise to $336. 19. The Nanny tax threshold remains at $1,800. No social security tax is due for domestics paid $1,800 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 2013 increases to $2,000. A parent will be able to elect to include a child’s income on the parent’s return for 2013 if the child’s income is more than $1,000 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 $2,000 is taxed at the parents’ marginal rate 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 $59,000, $29,500 for singles. 22. Adoption tax credit increased to $12,770 of expenses, from $12,650. Phaseout starts at $191,530 AGI. 23. The Lifetime Learning credit phaseout for MFJ starts at $107,000, $53,000 for singles. The American Opportunity Tax Credit was extended through 2017. 24. Gift tax exclusion increases to $14,000 per donee for gifts made in 2013. 25. The limit on deducting payins to Health Savings Accounts rises to $6,450 for family coverage and $3,250 for individual coverage. Account owners born before 1959 can put in an additional $1,000. Ceiling on out of pocket cost rises to $12,500 for family coverage and $6,250 for individual coverage. HSAs can be rolled into IRAs. 26. The 10% credit for energy saving improvements up to a maximum credit of $500 ended in 2011. See our August 2005 Newsletter for details. It does not exist for 2012 or 2013. 27. The up to $250 above the line deduction for teachers’ out of pocket classroom related expenses has been reinstated for 2012 and 2013. 28. Companies can deduct 9% of income from U.S. production activities. U.S. production activities in Puerto Rico are now eligible for the deduction. 29. U.S. taxpayers working abroad have a higher exclusion, $97,600, up from $95,100. 30. Landlords must file 1099s if they pay a service provider $600 or more. 31. Federal minimum wage remains unchanged at $7.25, food service employees, $2.13. New Jersey and New York Minimum wage is $7.25. New York tipped employees, $4.29. Connecticut minimum wage is $8.25, tipped employees $5.52. Pennsylvania minimum wage is $7.25 with tipped employees $2.83. 32. Credit and Debit Card companies will continue to issue 1099s on payments made to merchants in 2013. Third party networks such as Paypal will issue 1099s to payees with over 200 sales transactions and more than $20,000 in sales income. 33. S Corporations and partnerships will continue to owe a penalty of $195 per owner or partner per month for up to 12 months for failure to file on time. 34. High income taxpayers can continue to convert their IRAs to ROTHs. The $100,000 AGI cap is gone. 35. Nearly all businesses must wire tax deposits to the IRS. 36. Standard mileage allowance for business increases to 56.5¢ per mile. 24¢ a mile for medical purposes and job related moves, a 1¢ increase. Remains at 14¢ per mile for charitable driving. 37. The threshold for deducting medical expenses rises to 10% of AGI for those under 65. If 65 or older, can retain the 7.5% cap. 38. Annual payins to Flexible Spending Accounts (FSA) are now capped at $2,500. 39. 2013 income ceiling on ROTH IRA payins go up. Contributions phase out at AGIs of $178,000 to $188,000 for couples and $112,000 to $127,000 for singles. 40. Bonus rate or flat rate withholding for supplemented wages less than $1,000,000 remains at 25%. If more than $1,000,000 the rate rises from 35% to 39.6%. 41. Mandatory health care payments under the Patient Protection and Affordable Care Act (Obamacare) are effective after 12/31/13. As always, if you have any questions about these or any other matters, do not hesitate to call us. Remember, We’re Here For You!