Each year, certain tax figures are adjusted for inflation. While most figures are unchanged versus 2016, there is more than a 7% increase to the maximum earnings subject to social security tax. Take note of these numbers to use in your 2017 planning.
• The maximum earnings subject to social security tax in 2017 is $127,200. The earnings limit for those under full retirement age increases to $16,920 for 2017.
• The “nanny tax” threshold remains $2,000 in 2017. If you pay household employees $2,000 or more during the year, you’re generally responsible for payroll taxes.
• The “kiddie tax” threshold remains $2,100 for 2017. If you have a child under the age of 19 (under age 24 for full-time students) who has more than $2,100 of unearned income, such as dividends and interest income, the excess could be taxed at your highest rate in 2017.
• The maximum individual retirement account (IRA) contribution you can make in 2017 remains unchanged at $5,500 if you are under age 50 and $6,500 if you are 50 or older.
• The maximum amount of wages employees can contribute to a 401(k) plan remains at $18,000, with an additional $6,000 if you are 50 or older. The 2017 maximum contribution for SIMPLE plans is $12,500 and and an additional $3,000 if you are 50 or older.
• The maximum you can contribute to a health savings account in 2017 is $3,400 for individuals and $6,750 for families. The catch-up contribution if you’re age 55 or older is $1,000.
Will wedding bells be ringing for you along with holiday sleigh bells this year? If so, add tax planning to your to-do list. Here are tax tips for soon-to-be newlyweds.
Check the effect marriage will have on your tax bill. If you both work and earn about the same income, you may need to adjust your tax withholding to avoid an unexpected tax bill next April, as well as potential penalty and interest charges for underpayment of taxes.
Notify your employer. Both you and your spouse will need to file new Forms W-4, Employee’s Withholding Allowance Certificate, with your employers to reflect your married status.
Notify the IRS. You can use Form 8822, Change of Address, to update your mailing address if you move to a new home.
Notify the insurance marketplace. If you receive advance payments of the health insurance premium tax credit, marriage may change the amount you can claim.
Update your social security information. You’ll need a certified copy of your marriage certificate to accompany Form SS-5, Application for a Social Security Card, if you change your name. Otherwise the IRS won’t be able to cross-match your new name and your social security number when you file your return with your spouse.
Review your financial paperwork. Update your estate plan, making appropriate changes to wills, powers-of-attorney, and health care directives. Also review the beneficiary designations on your retirement plans and insurance policies.
Have questions? Contact us. We’ll help you get the financial part of your married life off to a great start.
According to the 2016 Summary of Annual Reports by the trustees, the major source of funding for the Social Security and Medicare programs is the payroll tax you and your employer pay, or that you pay as a self-employed worker. In addition, about 13% of the funding comes from the taxation of social security benefits – those taxes you pay with your federal income tax return when you collect social security benefits and your income is above a certain amount. Other sources of funding come from the interest earned from the Treasury on the program assets, monthly premiums paid for Medicare benefits, and general tax revenue.
The Bipartisan Budget Act of 2015 made two changes to social security benefit strategies.
“File and suspend” was a way for married couples to allow the higher earning spouse to claim benefits at full retirement age but suspend the benefits until a later date. Under the Act, this strategy will no longer be available after April 30, 2016.
“Restricted application” applied to married couples who had reached full retirement age and who were eligible for both a spousal benefit and a personal retirement benefit. These couples could file a restricted application for spousal benefits only, then delay applying for personal retirement benefits. If you’ll turn 62 after 2015, the Act eliminated the ability to file a restricted application for only spousal benefits. However, if you were already 62 or older in 2015, you can continue to use the restricted application method for spousal benefits, but only upon reaching full retirement age.