2015 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments

Posted on by katemley

IRS Announces 2015 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments

The IRS recently announced annual inflation adjustments for several tax provisions, which will apply to the 2015 tax year. Some of the affected provisions include: income tax rate schedules, the estate tax exemption, long-term care adjustments, and retirement adjustments. Below is a summary of those adjustments.

Tax Rates. Beginning in the 2015 tax year, the following tax rates will apply:

If the Taxable Income Is: The Tax for Married Individuals Filing Jointly is:
Less than or equal to $18,45010% of the taxable income
Over $18,450 but not over $74,900
  		$1,845 plus 15% of the excess over $18,450
Over $74,900 but not over $151, 200$10,312.50 plus 25% of the excess over $74,90010% of the taxable income
Over $151,200 but not over $230,450$29,387.50 plus 28% of the excess over $151,200
Over $230,450 but not over $411,500$51,566.50 plus 33% of the excess over $230,450
Over $411,500 but not over $464,850$111,324 plus 35% of the excess over $411,500
Over $464,850$129,996.50 plus 39.6% of the excess over $464,850
If the Taxable Income Is: The Tax for Heads of Households is:
Not over $13,15010% of the taxable income
Over $13,150 but not over $50,200$1,315 plus 15% of the excess over $13,150
Over $50,200 but not over $129,600$6,872.50 plus 25% of the excess over $50,200
Over $129,600 but not over $209,850$26,722.50 plus 28% of the excess over $129,600
Over $209,850 but not over $411,500$49,192.50 plus 33% of the excess over $209,850
Over $411,500 but not over $439,000$115,737 plus 35% of the excess over $411,500
Over $439,000$125,362 plus 39.6% of the excess over $439,000
If the Taxable Income Is: The Tax for Unmarried Individuals is:
Not over $9,22510% of the taxable income
Over $9,225 but not over $37,450$922.50 plus 15% of the excess over $9,225
Over $37,450 but not over $90, 750$5,156.25 plus 25% of the excess over $37,450
Over $90,750 but not over $189,300$18,481.25 plus 28% of the excess over $90,750
Over $189,300 but not over $411,500$46,075.25 plus 33% of the excess over $189,300
Over $411,500 but not over $413,200$119,401.25 plus 35% of the excess over $411,500
Over $413,200$119,996.25 plus 39.9% of the excess over $413,200
If the Taxable Income Is:The Tax for Married Individuals Filing Separate Returns is:
Not over $9,22510% of the taxable income
Over $9,225 but not over $37,450$922.50 plus 15% of the excess over $9,225
Over $37, 450 but not over $75,600$5,156.25 plus 25% of the excess over $37,450
Over $75,600 but not over $115,225$14,693.75 plus 28% of the excess over $75,600
Over $115,225 but not over $205,750$25,788.75 plus 33% of the excess over $115,225
Over $205,750 but not over $232,425$55,662 plus 35% of the excess over $205,750
Over $232,425$64,989.25 plus 39.6% of the excess over $232,425
If the Taxable Income Is:The Tax for Estates and Trusts is:
Not over $2,500
15% of the taxable income
Over $2,500 but not over $5,900$375 plus 25% of the excess over $2,500
Over $5,900 but not over $9,050$1,225 plus 28% of the excess over $5,900
Over $9,050 but not over $12,300$2,107 plus 33% of the excess over $9,050
Over $12,300$3,179.50 plus 39.6% of the excess over $12,300

Estate Tax Exemption. The Estate Tax is a tax imposed on the transfer of property at a person’s death, for any portion of the decedent’s gross estate that exceeds the Federal Estate Tax Exemption. This year the estate tax exclusion has increased from a total of $5,340,000 to $5,430,000. This means that decedents who die in 2015 have an estate tax exclusion that has increased by $90,000 from the previous year.

Long-term Care. Deductions for Long Term Care Insurance Premiums have increased slightly from 2014. The 2015 deductible limits under §213(d)(10) for eligible long-term care premiums are as follows:

Attained Age Before Close of Taxable YearLimitation on Premiums
40 or less $380
More than 40 but not more than 50 $710
More than 50 but not more than 60 $1,430
More than 60 but not more than 70 $3,800
More than 70$4,750

Retirement Adjustments. The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the government’s Thrift Savings Plan has increased from $17,500 to $18,000. In addition, if you are 50 or over you can contribute an additional $6,000 as a catch-up contribution. However, the limit on annual contributions to IRA accounts remains unchanged at $5,500 with the catch-up contribution limit remaining $1,000.

The deduction for taxpayers making contributions to traditional IRA accounts is phased out gradually starting at an Adjusted Gross Income (AGI) of $61,000 for single taxpayers and heads of households, $98,000 for married couples filing jointly (when the spouse who makes the IRA contribution is covered by a workplace retirement plan), and $183,000 for an IRA contributor not covered by a workplace retirement plan but who is married to someone who is covered. 

The deduction for taxpayers making contributions to a Roth IRA is phased out gradually starting at an AGI of $183,000 for married couples filing jointly and $116,000 for singles and heads of households.

Lastly, the AGI limit for the saver’s credit (retirement savings contribution credit) for low and moderate income workers has also increased slightly for 2015. The credit is now $61,000 for married couples filing jointly, $45,750 for heads of household, and $30,500 for singles and married couples who file separately.

If you have any questions about how these adjustments might affect your tax situation, please feel free to contact our office for further assistance.

Texas Receives “High Performance Bonus”

Posted on by katemley

Texas Receives “High Performance Bonus” Under Federal Worker Misclassification Initiative:

The U.S. Department of Labor (DOL) recently awarded $10.2 million in grants to 19 states as part of the Department’s Misclassification Initiative. The Misclassification Initiative was created in 2011, as part of a Memorandum of Understanding (MOU) signed between the DOL and IRS.  The MOU formed an agreement between the two agencies to work together to reduce the incidence of worker misclassification, by sharing information and coordinating enforcement efforts.

A worker misclassification occurs when an employer or business owner classifies a worker on their tax returns as something other than an employee (such as an independent contractor), when they should be classified as an employee. Generally, the distinction between an employee and independent contractor is in how much control the person paying for the service has over (1) what work will be done and (2) how that work will be done. The more control the person paying has over the work being done, the more likely it is that the person providing the service should be classified as an employee.

From the worker’s perspective, misclassification can mean denial from benefits and programs such as family medical leave, overtime, minimum wage, and unemployment insurance. From the government’s perspective, misclassification leads to a substantial loss to the Treasury by way of lost Social Security, Medicare, unemployment insurance, and worker’s compensation funds.

While the Misclassification Initiative was started in 2011, this year is the first year that individual states were eligible to receive grant funding for their efforts to decrease worker misclassification. Although several states already had existing programs designed to reduce misclassification, under the federal Misclassification Initiative individual grants up to $500,000 were awarded to 19 states under a competitive award process.

The Misclassification Initiative also offers additional grant funding to states through its “High Performance Bonus” program.  This bonus program is based off the Federal Supplemental Nutrition Assistance Program (SNAP), formerly called the food stamp program, which also provides bonuses for high performing states. So far, four states (Maryland, New Jersey, Texas, and Utah) have received such bonuses. Of those states, Texas has received $775,529 in bonuses, which is almost $300,000 more than the next highest recipient, New Jersey. According to the DOL the bonuses are awarded to the states that are most successful in detecting and prosecuting employers that fail to pay taxes due to misclassification. The bonus program is designed to give states both an extra incentive to carry out enforcement actions and additional funds to upgrade their misclassification enforcement programs.

If you’re unsure how your workers should be classified and would like assistance, please contact our office.

Tax Responsibilities during government shutdown

Posted on by katemley

Government shutdown does not relieve tax responsibilities of individuals and businesses.

Some individual and business taxpayers are wondering if they still need to meet their tax obligations, even though the federal government is shut down.  The easy answer is absolutely. The IRS has had to dramatically reduce its workforce during the shutdown, but the extension date of October 15, 2013 remains for individual return filers of Form 1040 who timely filed for an extension to file their returns.   Additionally, employment tax returns due October 31, 2013 for 3rd Quarter remain due on that date.  Businesses that are required to deposit their employment taxes remain obligated to deposit timely.  So, for example, the next monthly deposit due date for Form 941 is October 15, 2013.  That date will be the due date, regardless of whether or not the federal government is open or closed.

Failure to meet proper filing and payment deadlines could result in significant penalties.  It is unclear if the IRS would waive penalties based on reasonable cause.  It is presumed that the argument for failure to file or pay while the government is shut down would be that the taxpayer assumed there would be no federal employees to accept the return or payment. IRS automated phone lines and the official IRS website make it very clear that the taxpayer is required to continue filing and paying taxes during the government shutdown.  It is believed that there would be limited relief for late filers and payers based on this argument.  First time penalty abatement requests may very well be honored, however.

Taxpayers should note that penalties associated with non-payment and non-filing can be significant.  An individual or corporate taxpayer that fails to properly deposit will be assessed with a failure to deposit penalty that could be as high as 10% of the amount of underpayment.  Additionally, late payment penalties could apply that equal ½% of the unpaid tax for each month, or part of a month, that the taxpayer doesn’t pay a balance.  This penalty maxes out at 25%.

Failure to timely file penalties are some of the fastest accruing penalties the IRS assesses.  The IRS will assess a penalty equal to 5% of the unpaid tax for each month or part of a month that you file late.  This penalty will accrue monthly until is maxes at 25%.  This can happen quickly – in only five months.  If a taxpayer is on extension for his or her 1040 and has a due date of October 15, 2013, but assumes it is not necessary to timely file because the government is not open, then the taxpayer would be assessed a 5% penalty, at a minimum, even if they file their return on October 16, 2013 – assuming the government re-opened on that day. 

Heed the advise on the IRS website: “Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law” during the current lapse in appropriations which has resulted in the current federal government shutdown.

If you have any questions regarding these issues, please don’t hesitate to contact our office.