Ringing in the New Year

Dear Client:
  A new year rings in one set of tax rules. But changes are coming. Lawmakers chose to retroactively revive dozens of tax breaks for 2014, only to allow them to expire anew as 2015 begins. So taxpayers will again face uncertainty this year as they make their business and investment decisions. We expect Congress to renew all popular tax breaks again for 2015, although if the past is any guide, that might not happen until late in the tax year.

  Now let’s turn to what’s new for 2015. The employer mandate starts to kick in. Companies with 100 or more full-time-equivalent employees must offer health coverage to full-timers or pay a tax. Full-timers are those employed at least 30 hours a week on average, but there’s a good chance this number will be raised. Starting in 2016, firms with 50 to 99 full-time-equivalent workers will be subject to the pay-or-play rules, and the coverage offer will be expanded to dependents, including kids under age 26. The fines for noncompliance are stiff. One hits firms that fail to offer coverage to at least 70% of full-time workers in 2015 if even one full-timer opts to buy insurance through a government exchange and receives a tax credit to subsidize the premium. For this year, the fine is $2,084 times the number of full-timers employed, less 80. Next year, the penalty is much stiffer. The required coverage jumps from 70% to 95% of full-time employees, and only 30 full-timers are disregarded when figuring the tax. Another hits companies whose insurance is unaffordable. They’ll owe a tax equal to $3,126 for each full-timer who gets a tax credit for purchasing coverage on an exchange. Coverage is treated as affordable if the required premium contribution from an employee for self-only coverage doesn’t exceed 9.56% of the worker’s wages. To pass muster, the employer’s health plan must also provide “minimum value,” meaning that it must pay at least 60% of the costs of covered health services.

  On tap: Employer reporting of worker health coverage. Starting in Jan. 2016, firms with 50 or more full-time-equivalent employees must report 2015 insurance data for each full-timer to the Service and the worker on Form 1095-C. Reporting for 2014 is voluntary. The agency says it won’t delay implementing this reporting requirement, which IRS needs to help enforce the individual mandate against folks without coverage. Large employers must start preparing now for this new reporting obligation.

  The individual mandate’s fine for going without insurance is higher in 2015. The tax is typically the greater of two amounts: The basic fine or an income-based levy. The basic fine is soaring to $325 a person ($162.50 for each family member under 18), with a ceiling of $975…up $230 and $690, respectively. And the income-based levy doubles to 2% of the excess of household income over the tax return filing threshold. The income levels to qualify for the health premium credit also increase. The credit is available only to those with household incomes between 100% and 400% of the federal poverty level: $11,670 to $46,680 for singles and $23,850 to $95,400 for a family of four. Folks eligible for Medicaid or other federal insurance don’t qualify.

PERSONAL TAXES:  The income tax brackets for 2015 are a tad wider than last year’s, because of mild inflation during the 12-month period that is used to calculate the adjustments to the tables. This year’s tax rates did not change.

Marrieds: If taxable income is                                                    The tax is
Not more than $18,450                                                                10% of taxable income
Over $18,450 but not more than $74,900                                      $1,845.00 + 15% of excess over $18,450
Over $74,900 but not more than $151,200                                    $10,312.50 + 25% of excess over $74,900
Over $151,200 but not more than $230,450                                  $29,387.50 + 28% of excess over $151,200
Over $230,450 but not more than $411,500                                  $51,577.50 + 33% of excess over $230,450
Over $411,500 but not more than $464,850                                  $111,324.00 + 35% of excess over $411,500
Over $464,850                                                                            $129,996.50 + 39.6% of excess over $464,850

Singles: If taxable income is                                                      The tax is
Not more than $9,225                                                                 10% of taxable income
Over $9,225 but not more than $37,450                                       $922.50 + 15% of excess over $9,225
Over $37,450 but not more than $90,750                                     $5,156.25 + 25% of excess over $37,450
Over $90,750 but not more than $189,300                                   $18,481.25 + 28% of excess over $90,750
Over $189,300 but not more than $411,500                                 $46,075.25 + 33% of excess over $189,300
Over $411,500 but not more than $413,200                                 $119,401.25 + 35% of excess over $411,500
Over $413,200                                                                           $119,996.25 + 39.6% of excess over $413,200

Household Heads: If taxable income is                                     The tax is
Not more than $13,150                                                              10% of taxable income
Over $13,150 but not more than $50,200                                    $1,315.00 +15% of excess over $13,150
Over $50,200 but not more than $129,600                                  $6,872.50 + 25% of excess over $50,200
Over $129,600 but not more than $209,850                                $26,722.50 + 28% of excess over $129,600
Over $209,850 but not more than $411,500                                $49,192.50 + 33% of excess over $209,850
Over $411,500 but not more than $439,000                                $115,737.00 + 35% of excess over $411,500
Over $439,000                                                                          $125,362.00 + 39.6% of excess over $439,000

  Standard deductions for 2015 rise a bit. Marrieds get $12,600. If one spouse is age 65 or older…$13,850. If both are…$15,100. Singles can claim $6,300…$7,850 if they’re 65. Household heads get $9,250 plus $1,550 more once they reach age 65. Blind people receive $1,250 more ($1,550 if unmarried and not a surviving spouse). High-incomers lose their itemized deductions above a higher level this year. Their write-offs are slashed by 3% of the excess of AGI over $258,250 for singles, $284,050 for household heads and $309,900 for marrieds. But the total reduction can’t exceed 80% of itemizations. Medicals, investment interest, casualty losses and gambling losses (to the extent of winnings) are exempted from this cutback. Personal exemptions increase to $4,000 for filers and their dependents. However, this tax break is phased out for upper-incomers. It is trimmed by 2% for each $2,500 of AGI over the same thresholds for the itemized deduction phaseout.

  The 20% top rate on dividends and long-term gains starts at a higher level for 2015…singles with taxable income above $413,200, household heads over $439,000 and joint filers above $464,850. The 3.8% Medicare surtax boosts the rate to 23.8%. The regular 15% maximum rate applies for filers with incomes below these amounts, except that filers in the 10% or 15% income tax bracket still get the special 0% rate.

MINIMUM TAX:  AMT exemptions tick upward for 2015. They increase to $83,400 for couples and $53,600 for both singles and heads of household. The phaseout zones for the exemptions start at higher income levels as well…above $158,900 for couples and $119,200 for single filers and household heads. Also, the 28% AMT tax bracket kicks in a little later in 2015…above $185,400 of alternative minimum taxable income.

SOCIAL SECURITY:  The Social Security wage base increases this year to $118,500, up $1,500 from the cap for 2014. The tax rate imposed on employers and employees remains 6.2%, and the employer’s share of Medicare tax stays at 1.45% of all pay. The employee’s share is 1.45%, but the 0.9% Medicare surtax kicks in for singles with wages exceeding $200,000 and couples earning over $250,000. The surtax doesn’t affect the employer’s share. Self-employeds are also subject to the surtax.

  Social Security benefits rise 1.7% in 2015, on account of low inflation. The earnings limits are heading up, too. People who turn 66 this year do not lose any benefits if they make $41,880 or less before they reach that age. Individuals between ages 62 and 66 by the end of 2015 can make up to $15,720 before they lose any benefits. There’s no earnings cap once a beneficiary turns 66. The amount needed to qualify for coverage climbs to $1,220 a quarter. So earning $4,880 anytime during 2015 will net the full four quarters of coverage.

MEDICARE:  The basic Medicare Part B premium remains $104.90 per month in 2015. But upper-income seniors still have to pay higher Part B and D premiums if their modified adjusted gross income for 2013 exceeded $170,000 for couples or $85,000 for single people. Modified AGI is AGI plus any tax-exempt interest, EE bond interest that’s used for education and excluded foreign earned income. The 2015 Part B surcharge doesn’t change, while the Part D add-on rises slightly. The total surcharges on upper-incomers can be as large as $301.60 a month.

MEDICALS:  The annual caps on deductible contributions to HSAs inch up this year. The ceilings rise slightly to $6,650 for account owners with family coverage and to $3,350 for self-only coverage. Folks born before 1961 can put in $1,000 more. The limits on out-of-pocket costs, such as deductibles and copayments, will increase to $12,900 for people with family coverage and to $6,450 for individual coverage. Minimum policy deductibles increase to $2,600 for families and $1,300 for singles. The limits on deducting long-term-care premiums are a little higher. Taxpayers who are age 71 or older can write off as much as $4,750 per person. Filers age 61 to 70…$3,800. Those who are 51 to 60 can deduct up to $1,430. Individuals age 41 to 50 can take $710. And people age 40 and younger…$380.

ADOPTION:  The adoption credit can be taken on up to $13,400 of costs, a $210 boost. If the credit is more than a filer’s tax liability, the excess is not refundable. The full $13,400 credit is available for a special needs adoption, even if it cost less. The credit starts to dry up for filers with AGIs over $201,010 and ends at $241,010. The exclusion for company-paid adoption aid also increases to $13,400.

FRINGE BENEFITS:  The exclusion for U.S. taxpayers working abroad is a bit higher…$100,800. But the caps on transit passes and commuter vans fall sharply once again, to $130 a month. In late 2014, Congress reinstated the $250 cap, but only for 2014. The monthly limitation on employer-provided tax-free parking benefits remains $250. Employees covered by health flex plans can defer up to $2,550…a $50 hike.

EDUCATION:  The income caps are higher for tax-free EE bonds used for education. The exclusion starts phasing out above $115,750 of AGI for married couples and $77,200 for singles. It ends when AGI hits $145,750 and $92,200, respectively. The lifetime learning credit also starts phasing out at higher income levels… from $55,000 to $65,000 of AGI for singles and $110,000 to $130,000 for couples.

KIDDIE TAX:  The kiddie tax has a little less bite. The first $1,050 of unearned income of a dependent who doesn’t work is tax-free, a $50 hike. The next $1,050
is taxed at 10%, and any unearned income over $2,100 is taxed at the parents’ rate.

SAVINGS PLANS:  Many key dollar limits on retirement plans are a little higher this year: The maximum 401(k) contribution rises to $18,000, up $500 from 2014. Individuals who were born before 1966 are allowed to put in as much as $24,000. These payin limits apply to 403(b) and 457 plans as well. The ceiling on SIMPLEs increases to $12,500…$15,500 for individuals who are age 50 or older this year. Retirement plan contributions can be based on up to $265,000 of salary. The payin limitation for defined contribution plans increases to $53,000. Anyone making over $120,000 is highly paid for plan discrimination testing.

  The income ceilings on Roth IRA payins tick upward. Contributions phase out at AGIs of $183,000 to $193,000 for couples and $116,000 to $131,000 for singles. Deduction phaseouts for regular IRAs start at higher levels as well, ranging from $98,000 to $118,000 of AGI for couples and from $61,000 to $71,000 for singles. If only one spouse is covered by a plan, the phaseout zone for deducting a contribution for the spouse who isn’t covered begins at $183,000 of AGI and finishes at $193,000. The IRA and Roth payin caps remain at $5,500…$6,500 for those 50 and up. And the partial credit for retirement plan payins phases out at higher levels. For marrieds…at AGIs over $61,000. Household heads…$45,750. Singles…$30,500.

ESTATE AND GIFT TAX:  The estate and gift tax exemption for 2015 jumps to $5,430,000. The rate remains 40%. The gift tax exclusion stays the same…$14,000 per donee. Up to $1,100,000 of farm or business realty can receive discount estate tax valuation. And more estate tax qualifies for an installment payment tax break. If one or more closely held businesses make up greater than 35% of an estate, as much as $588,000 of tax can be deferred, and IRS will charge only 2% interest.

BUSINESS TAXES:  The standard mileage rate rises to 57.5¢ a mile for business driving, up 1.5¢. The rate falls to 23¢ a mile for medical travel and moving and remains at 14¢ for charitable driving. Standard rate users can also deduct the cost of parking and tolls. More small firms that offer health coverage can get a tax credit for doing so. The full credit is available only to firms with 10 or fewer full-time-equivalent employees and average wages of $25,800 or less, up by $400. The credit diminishes rapidly for companies with more employees and higher average pay, phasing out completely for businesses with more than 25 workers or average pay in excess of $51,600.

  Expensing is slashed. Only $25,000 of assets qualify, down from $500,000, and the $25,000 phases out once more than $200,000 of assets are put in service. 50% bonus depreciation lapsed, as have other breaks, such as the R&D credit and 15-year depreciation for restaurant renovations and leasehold improvements. Lawmakers will have to find time in 2015 to address the expired provisions. They will also continue laying the groundwork for fundamental tax reform.

  And the Supreme Court could throw a wrench into the health reform law. The high court will tackle the issue of whether health premium tax credits are limited to those who buy coverage on a state-run exchange. A decision against the government would nix credits to buyers of insurance on exchanges run by the feds. In addition, it would weaken the employer mandate because an employer’s liability for the fine is tied to its employees receiving a credit for insurance bought on an exchange. We’ll watch Congress and the Court closely and report on any developments.
Yours very truly,

Leave a Reply

Your email address will not be published. Required fields are marked *