The penalty for not having health insurance is not due to be put into effect till 2014. People who do not have health insurance in 2013 will not have to worry about it. (They may worry about the cost of medical care, but not about being penalized for not being insured.)
Once the penalty goes into effect, it appears, from what I can see, that it will not actually be payable until the person files his or her 2014 tax return in 2015.
At that point the IRS has been given limited powers to collect it. Tax liens and seizing of property will not be allowed. However, the IRS will have some powers and will probably find a way.
For 2014 the minimum penalty will be $95 per person. For a family of three, the minimum will be $95 X 3 = $285. For families with more than three members, the minimum is frozen at $285. (They stop counting after the third family member.)
The maximum amount of the penalty will be determined by a percentage of taxable income. For 2014 it will be 1%. When it is fully phased in starting in 2016, it will be 2.5%.
But that maximum will not be allowed to go higher than the national average of low-cost plans being offered through the insurance exchanges that will be set up by the law.
Tuesday, November 20, 2012
Friday, November 16, 2012
Fiscal Cliff, Tax Aspects
Here are some notes on tax changes scheduled on Jan 1st, if Congress and the President can't get together:
1. Income tax rates will go up (for example, for a married couple):
a) The 10% bracket will become part of the 15% bracket (i.e., there will no longer be a 10% bracket).
b) The 15% bracket will go from taxable income of $0 to $60,550 instead of the current $17,001 to $69,000.
c) The 25% bracket goes to a rate of 28%.
d) The current 28% bracket goes to 31%.
e) The 33% bracket becomes a 36% bracket.
f) The 35% bracket goes to 39.6%.
2. The tax on long term capital gains goes up as follows:
a) For people in the current 10% and 15% bracket for regular income tax, the capital gains rate goes from zero (no tax at all) to 10%.
b) For everyone else it will go from 15% to 20%
c) For upper income people (in the $200,000-plus range), there will also be a 3.8% Medicare surtax.
3. The thresholds for Alternative Minimum Tax go back to where they were in the year 2000. This would mean that probably millions more people would find their tax jacked up by the AMT, which was originally conceived to snag only the very wealthy.
4. Employees' FICA tax withholding would go from 4.2% to 6.2%. (This does not include the Medicare tax withholding of 1.45%, which would not change--except for a .9% increase for the 'wealthy'.)
5. "Obamacare" changes and taxes kick in as follows:
a) The medical deduction threshold for itemized deductions goes from 7.5% to 10%, except for people 65 or older. This will mean that many people who deduct medical expenses will see their deduction shrink or disappear.
b) Increased Medicare taxes for high-incomers
c) Misc other taxes and fees.
6. Reduction of the Child Tax Credit
7. The ability of small and mid-sized businesses to write off (rather than depreciate) purchases of equipment and other assets will be cut from a limit of $125,000 to $25,000. (In 2011 the limit was $500,000.) This has been a very big tax break for small businesses, and having it reduced to $25,000 will make a huge difference to many of them.
8. Various deductions, credits, etc. will expire, such as teachers' deductions for teaching supplies, Qualified Charitable Distributions from IRA's, etc.
1. Income tax rates will go up (for example, for a married couple):
a) The 10% bracket will become part of the 15% bracket (i.e., there will no longer be a 10% bracket).
b) The 15% bracket will go from taxable income of $0 to $60,550 instead of the current $17,001 to $69,000.
c) The 25% bracket goes to a rate of 28%.
d) The current 28% bracket goes to 31%.
e) The 33% bracket becomes a 36% bracket.
f) The 35% bracket goes to 39.6%.
2. The tax on long term capital gains goes up as follows:
a) For people in the current 10% and 15% bracket for regular income tax, the capital gains rate goes from zero (no tax at all) to 10%.
b) For everyone else it will go from 15% to 20%
c) For upper income people (in the $200,000-plus range), there will also be a 3.8% Medicare surtax.
3. The thresholds for Alternative Minimum Tax go back to where they were in the year 2000. This would mean that probably millions more people would find their tax jacked up by the AMT, which was originally conceived to snag only the very wealthy.
4. Employees' FICA tax withholding would go from 4.2% to 6.2%. (This does not include the Medicare tax withholding of 1.45%, which would not change--except for a .9% increase for the 'wealthy'.)
5. "Obamacare" changes and taxes kick in as follows:
a) The medical deduction threshold for itemized deductions goes from 7.5% to 10%, except for people 65 or older. This will mean that many people who deduct medical expenses will see their deduction shrink or disappear.
b) Increased Medicare taxes for high-incomers
c) Misc other taxes and fees.
6. Reduction of the Child Tax Credit
7. The ability of small and mid-sized businesses to write off (rather than depreciate) purchases of equipment and other assets will be cut from a limit of $125,000 to $25,000. (In 2011 the limit was $500,000.) This has been a very big tax break for small businesses, and having it reduced to $25,000 will make a huge difference to many of them.
8. Various deductions, credits, etc. will expire, such as teachers' deductions for teaching supplies, Qualified Charitable Distributions from IRA's, etc.
Saturday, November 10, 2012
Social Security increases
Social Security benefits will increase by 1.7% in 2013. Also, people aged at least 62 but less than 66 who have chosen to begin collecting Social Security before their full retirement age can make up to $15,120 in 2013 without having their benefits cut. This is up from $14,640 in 2012. (People above the full retirement age can earn as much as they want without benefit cuts.) People who reach retirement age during 2013 will be able to earn $40,080 before their birthday without losing benefits.
Monday, November 5, 2012
2013 Capital Gains Tax
One of the changes scheduled to go into effect for 2013 is an increase in the capital gains tax rate to 20% for most taxpayers. (For taxpayers in the 15% bracket, the rate will be 10%.)
The prospect of this tax increase coupled with the addition of an Obamacare surtax of 3.8% for people in upper income brackets is prompting some people to accelerate asset sales so that they are completed in 2012 instead of 2013.
This year the capital gains tax rate for people in the 25% bracket and above is 15%, and there is no Obamacare surtax. People in brackets below 25% do not pay capital gains tax at all!
It is widely hoped that the increase in the capital gains tax will be one of the things that will be changed by Congress before the end of the year, but no one knows if that change will actually be made.
The prospect of this tax increase coupled with the addition of an Obamacare surtax of 3.8% for people in upper income brackets is prompting some people to accelerate asset sales so that they are completed in 2012 instead of 2013.
This year the capital gains tax rate for people in the 25% bracket and above is 15%, and there is no Obamacare surtax. People in brackets below 25% do not pay capital gains tax at all!
It is widely hoped that the increase in the capital gains tax will be one of the things that will be changed by Congress before the end of the year, but no one knows if that change will actually be made.
Wednesday, October 31, 2012
Gift tax exclusion for 2013
In 2013 the gift tax exclusion will rise from $13,000 to $14,000. A person who makes a gift valued up to $14,000 will not have to report the gift in any way, nor does the person receiving the gift need to report it or pay any tax on it. This exclusion applies to each person to whom one makes a gift. For example, if a person has 10 grandchildren and wishes to give the maximum exempt gift to each, he or she can give each one $14,000 for a total of $140,000. (The person who receives the gift does not have to be related to the giver.)
A gift of more than $14,000 will require the filing of a gift tax return, but in many cases it will not require any tax to be paid with the return. A lifetime tab is kept on taxable gifts. If at any point the total exceeds the lifetime gift tax exemption (which, unfortunately, changes from time to time) then a tax will be paid. If the total never reaches the gift tax exemption amount, it will be subtracted from the person's estate tax exemption when he or she dies. (Complicated? Yes!)
Gifts of $14,000 or less ($13,000 in 2012) are as if they do not exist for the lifetime tab on taxable gifts.
Such gifts are valuable tools in estate planning for people who expect to have taxable estates upon their deaths.
Some gifts are unlimited, such as paying for someone's college tuition. If paid directly to the school, they are not subject to the $14,000 limit.
A gift of more than $14,000 will require the filing of a gift tax return, but in many cases it will not require any tax to be paid with the return. A lifetime tab is kept on taxable gifts. If at any point the total exceeds the lifetime gift tax exemption (which, unfortunately, changes from time to time) then a tax will be paid. If the total never reaches the gift tax exemption amount, it will be subtracted from the person's estate tax exemption when he or she dies. (Complicated? Yes!)
Gifts of $14,000 or less ($13,000 in 2012) are as if they do not exist for the lifetime tab on taxable gifts.
Such gifts are valuable tools in estate planning for people who expect to have taxable estates upon their deaths.
Some gifts are unlimited, such as paying for someone's college tuition. If paid directly to the school, they are not subject to the $14,000 limit.
Mass estate tax reminder
In Massachusetts the estate tax is based on the Federal law that was in effect as of December 31, 2000. It was updated in 2006 to increase the exemption amount from $700,000 to $1,000,000. Thus many people whose estates do not require the filing of a Federal estate tax return will nevertheless require the filing of a Massachusetts estate tax return.
Thursday, October 25, 2012
Estate Tax Now
The estate tax law currently in effect could expire at the end of the year if Congress does not extend it. We have not talked about it much here since it went into effect at the beginning of 2011.
The main thing that was new about it was that, for a married couple, if the first spouse to die does not use up the entire basic exemption of $5 million, he or she can pass the balance of the exemption on to the spouse.
A person who dies with an estate of less than $5,120,000 is not required to file an estate tax return. However, if the executor wishes to pass any remainder of the estate tax exemption on to the other spouse, he or she must file an estate tax return even if none would otherwise be required. And it must be filed by the due date, which is generally nine months after the date of death.
Some professionals who deal with estates and estate taxes are saying that even for a couple who apparently would never need to file an estate tax return, one should be filed when the first spouse dies just in case the remaining spouse unexpectedly wins the lottery or some such event. Then the extra exemption would come in handy.
As noted above, this estate tax law may not survive past the end of this year. If Congress does not act to extend it, it is scheduled to revert back to an exemption of $1 million and a top tax rate of 55%. (The top tax rate in is currently 35%.)
The main thing that was new about it was that, for a married couple, if the first spouse to die does not use up the entire basic exemption of $5 million, he or she can pass the balance of the exemption on to the spouse.
A person who dies with an estate of less than $5,120,000 is not required to file an estate tax return. However, if the executor wishes to pass any remainder of the estate tax exemption on to the other spouse, he or she must file an estate tax return even if none would otherwise be required. And it must be filed by the due date, which is generally nine months after the date of death.
Some professionals who deal with estates and estate taxes are saying that even for a couple who apparently would never need to file an estate tax return, one should be filed when the first spouse dies just in case the remaining spouse unexpectedly wins the lottery or some such event. Then the extra exemption would come in handy.
As noted above, this estate tax law may not survive past the end of this year. If Congress does not act to extend it, it is scheduled to revert back to an exemption of $1 million and a top tax rate of 55%. (The top tax rate in is currently 35%.)
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