Top Tax Bracket for Additional Medicare Taxes

Just a friendly reminder about the 39.6% top tax rate for individuals earning more than $418,401 and $470,701 for joint filers for 2017. The limit for married taxpayers filing separate returns is $235,351.

Workers with wages and other employee compensation and/or net self-employment earnings that exceed $200,000 ($250,000 for married taxpayers; $125,000 if married filing separately) will be subject to the 0.9% Medicare surtax. Employers are required to withhold the tax when the employee's wage exceeds $200,000 for the year, regardless of whether the employee is subject to the tax or not. The difference between the actual tax liability and the actual tax is reconciled on your tax return. 

Net Investment Income Tax

Individuals who have both net investment income and modified adjust gross income of at least $200,000 ($250,000 for joint taxpayers; $125,000 for married filing separately) may be subject to this 3.8% tax. Net investment income includes items like interest, dividends, capital gains, rental and royalty income. It does not include income from sources such as wages, unemployment compensation, operating income from a non passive business, social security benefits, alimony, tax-exempt interest, and self-employment income.

This tax was retained in the 2018 tax cut signed in late December, 2017.

 

Affordable Care Act: Covering Your Dependents

Unless you qualify for an exemption, you are required to have health insurance or Medicare coverage for you and your dependents. Otherwise you must pay a penalty. We must know if your dependents are covered and how they filed their tax returns to determine if you are subject to a penalty. Even if your dependents live in a different household, you must be able to document that they were covered by health insurance last year. The IRS WILL NOT PROCESS ANY RETURNS THAT DO NOT ANSWER THE QUESTION ABOUT WHETHER YOU AND YOUR DEPENDENTS HAD HEALTH CARE COVERAGE.

For the new Tax Cut and Jobs Act of 2018, the PENALTY has been eliminated in 2019, but the MANDATE remains.  You are still REQUIRED to have health insurance because the Affordable Care Act has not been repealed or replaced at this time, but you will not be charged a penalty for not having it. The penalty remains in place for tax year 2018.
 

Simplified Home Office Deduction

Your qualified home office is easier to deduct thanks to the simplified method option. The maximum deduction is $1,500 ($5 per sq feet up to 300 sq feet). The simplified method is an option to those taxpayers who do not wish to pro-rate and depreciate expenses under the traditional home office rules. Taxpayers must still meet all the requirements to claim the deduction.

For those of  you who were taking this deduction as an unreimbursed business expense from your employer, you will no longer be able to deduct business expenses for 2018 because the Miscellaneous Business Expense Deduction has been eliminated from your Schedule A (Itemized Deductions).  You should ask your employer to offer an accountable plan so that you can receive reimbursements for your expenses directly from your employer. 

For those of you who are self-employed, you may continue to deduct these expenses, where applicable, in 2018 on your Schedule C.

Social Security Wage Limits

The maximum earnings subject to FICA withholding is $127,200 for 2017.  All covered wages will be subject to Medicare tax at 1.45%. There is an additional .9% surtax on wages over a threshold amount (MFJ $250,000; MFS $125,000; Single/HOH/QW $200,000).

For 2018, the maximum earning subject to FICA is $128,400.  
 

Extensions

Reminder: If Form 4868 has been filed on or before April 18, 2016 taxpayers will be granted an automatic six-month extension of time to file their 2015 tax returns to October 17, 2016. Partnerships and Trusts are granted a 5-month extension to September 15, 2016. Please keep in mind, however, that this is NOT an extension to pay; you are still responsible to pay any tax owed by April 18, 2016 to avoid penalties and interest.

Health Savings Accounts

An "above-the-line" 2017 deduction is available for contributions made to Health Savings Accounts by April 17, 2018. For tax year 2017, the amount is limited to not more than the annual deductible of the health plan, to a maximum of $3,400 for singles ($6,750 for families). 

Plan20182017
Self Only$1,350 - $3,450$1,300 - $3,400
Self Only, +55Max: $4,450Max: $4,400
Family$2,700 - $6,900$2,600 - $6,750
Family, +55Max: $7,900Max: $7,750

Estate Taxes

For 2017, the estate tax exemption is $5,490,000.  This is the amount an individual can leave to his or her heirs without paying any federal estate or gift tax. In addition, if any applicable exclusion amount remains unused as of the death of a spouse, the surviving spouse may add this unused amount to his or her own estate tax exemption. The American Taxpayer Relief Act permanently allows for inflation adjustments. For 2018, the estate tax exemption is $10,000,000 (to be adjusted for inflation; projected to be $11.18 million).

The annual gift tax exclusion is $14,000 for 2017 and $15,000 for 2018.  

Filing Requirements for 2016 & 2015

You must file a tax return if any of the following applies:

  • Special taxes are owed such as, AMT, additional taxes related to retirement plans, HSA, qualified tuition programs, household employment taxes, uncollected tax on tips, recapturing certain tax credits, etc.
  • Advance EIC payments received from employer
  • Net earnings from self-employment are at least $400
  • Wages over $108 earned from church exempt from Social Security taxes

IRS Charitable Contributions Requirements:

The IRS requires individuals to substantiate all charitable donations, regardless of the amount, with bank records (canceled check or bank statements) or a receipt from the charity. Yes, this includes the $1 you toss into the Goodwill buckets during the holidays and that extra $5 you toss into the second collection at Sunday Mass! Make sure that you receive a receipt from all of your donations from the charity in the year in which you made them. For donations in excess of $250, you must obtain a receipt from the charity on or before the date you file your tax return, including extensions.