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Kiplinger Tax Letter Excerpts

Posted by Predovich & Company

Tax Reform

Although things appear calm on tax reform, there is plenty going on behind the scenes.  The House is ahead of the Senate right now.  Senate taxwriters are developing issue papers on tax reform.  In addition, Finance Com. Democrats want tax overhaul to result in a net tax increase, while GOP members favor a revenue-neutral measure.  That has slowed the process there considerably.  However, House taxwriters are readying a bill on tax overhaul.  Rep. Dave Camp (R-MI), the chairman of the House Ways and Means Com., continues to vow that his committee will approve a bill before year-end.  That seems a bit of a stretch, with major fights coming up about deficit reduction, funding the federal government and raising the debt limit. Nevertheless, there's a decent chance that Chm. Camp will be able to issue a draft bill by then to get things rolling on revamping the tax code.

Benefit Plans

Several dollar ceilings on retirement plans will be higher next year. The payin limitation for defined contribution plans will increase to $52,000.  That is a $1,000 hike for Keogh plans, profit sharing plans and similar arrangements.  Retirement plan contributions can be based on up to $260,000 of salary and the benefit limit for pension plans is set to rise to $210,000 in 2014.  Some key items won’t change.  The 401(k) limit will remain $17,500, the same as this year.  Those born before 1965 can put in an additional $5,500.  These contribution limits also apply to 403(b) and 457 plans.  The ceiling on SIMPLEs will hold steady at $12,000.  Individuals age 50 or older in 2014 can put in $2,500 more. 

The 2014 payin limits for IRAs will also stay steady.  The caps remain at $5,500 plus $1,000 more for anyone who was born in 1964 or earlier.  The income caps on Roth IRA payins will go up.  Contributions phase out at AGIs of $181,000 to $191,000 for couples and $114,000 to $114,000 to $129,000 for singles.  The deduction phaseouts for regular IRAs will start at higher levels in 2014 from AGIs of $96,000 to $116,000 for couples and $60,000 to $70,000 for singles.  If only one spouse is covered by a plan, the phaseout zone for deducting a contribution for the uncovered spouse will begin at $181,000 of AGI and finish at $191,000. 

Social Security

The Social Security wage base will increase next year to $117,000, a $3,300 hike over this year’s cap.  The tax rate on employers and employees will remain at 6.2%.  The employer’s share of Medicare tax will stay at 1.45% of all pay.  The employee’s share is 1.45%, but the 0.9% Medicare surtax kicks in on singles with wages exceeding $200,000 and couples earning over $250,000.  The surtax doesn’t affect the employer’s share.  Self-employeds also will be subject to the surtax. 

Social Security benefits will rise 1.5% in 2014… slightly less than in 2013.  The earnings limits will be heading up too.  People who turn 66 next year will not lose any benefits if they earn $41,400 or less before they reach that age.  Individuals between ages 62 and 66 by the end of 2014 can make up to $15,480 before they’ll lose any benefits.  There is no earnings cap once a beneficiary turns 66.  Finally, the threshold for the nanny tax rises to $1,900 this year, a $100 boost.

Source:  The Kiplinger Tax Letter 11/8/13 - Vol. 88, No. 23


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