As we head into the homestretch of 2014, now is a good time to provide an update for the tax-related changes you can expect for 2015. Some of these will be purely informational; some of them should spur you to take action so you are prepared when the year begins.
- Social Security benefits will increase by 1.7% beginning in January to account for cost-of-living increases.
- For those individuals receiving Social Security benefits prior to Full Retirement Age (FRA) for Social Security, the earnings limit for 2015 is $15,720. For every $2 in earnings above the limit, $1 in SS benefits will be withheld.
- For employees, Social Security and Medicare tax withholding are as follows:
- Social Security taxes will be withheld at a rate of 6.2% for employees up to a wage base of $118,500, or a maximum of $7,347 for 2015.
- Medicare taxes are withheld at a rate of 1.45% for employees for all wages, with no maximum wage base.
- The Medicare surtax will be withheld by employers for those employees whose wages exceed $200,000, at an additional .9% rate.
Gift and Estate
- Gifting Exclusion amount remains at $14,000 per person, per year. Gifts can be made directly to organizations for education and medical expenses and do not count against this annual exclusion.
- Estate exclusion amount for those who die during 2015, equates to $5,430,000 per person. Spouses still have portability of unused deceased spousal exemption amounts.
Employer Plan Limits
- Defined Contribution Plan employee salary deferrals increased to $18,000 for 2015.
- Catch-up contributions for DC plans increased to $6,000 for those aged 50+.
- SIMPLE Plan contribution limits increased to $12,500, with an additional catch-up of $3,000, for those aged 50+.
- Total annual additions to Defined Contribution Plans and SEP IRA Plans of $53,000. Annual additions are comprised of employee salary deferrals, employer matches, and after-tax contributions.
- IRA/Roth IRA contribution limits remain at $5,500 for 2015, with an additional $1,000 catch-up for those aged 50+.
- Roth contribution eligibility is as follows for 2015;
- Married Filing Joint eligibility phase-out occurs when modified AGI is between $183,000 and $193,000. Roth contributions are ineligible for MAGI above $193,000.
- Single Filers eligibility phase-out occurs when Modified AGI is between $116,000 and $131,000. Roth contributions are ineligible for MAGI above $131,000.
Health Savings Accounts
Health Savings Account (HSA) contributions are permitted if you are covered by a High Deductible Health Plan for 2015 and are under the age of 65.
- A High Deductible Health Plan (HDHP) is one where the deductible is at least $1,300 for an individual, or at least $2,600 for a family.
- Maximum contributions to the HSA can total $3,350 for individuals or $6,650 for families. These totals are made up of both employee deferrals and employer contributions.
- If you are 55+ in 2015, you can defer an additional $1,000 to the HSA as a catch-up contribution.
Note: Although the Affordable Care Act allows parents to add their adult children (up to age 26) to their health plan, the IRS has not changed its definition of a dependent for Health Savings Accounts. This means that an employee, whose 24-year-old child is covered on his HDHP, is not eligible to use HSA funds to pay that child’s medical bills. Use the IRS resource to determine if your child meets the dependency rules.
North Carolina Tax Update
NC Income Tax is reduced for 2015 to a flat rate of 5.75% from 5.8% in 2014.
Although the rates have continued to come down from a high of 8.25% at one time, many taxpayers are finding they are paying more in tax. This is a result of the elimination of many deductions which had been in place in prior years, such as the deduction for contributions to NC 529 Plans, or the deduction for a portion of severance wages.
Retirement plan payments received and included in Federal AGI are no longer deductible as well, with the exception of those retirement payments exempted by court order including Bailey v. State, Patton v. State, and Emory v. State. Bailey, Patton and Emory are retirement plan payments received by local, state or federal retirees and will continue to be deductible for NC purposes. Finally, Social Security benefits received continue to be fully deductible for NC taxation purposes.
This is not intended to be a list of all tax updates. For questions regarding your particular situation, consult a tax professional.