Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
The Hospital Insurance Tax: Currently, you pay 1.45 percent as the Hospital Insurance portion of your Medicare contribution on your wages.
New Law: If you are single, and earn over $200,000, married with combined earnings more than $250,000, or married filing separately with earnings more than $125,000, you will pay an extra 0.9 percent, or a total of 2.35 percent on the overage.
Tax Tip: If there is only one employer for the family, your employer will withhold the extra tax. However, if you have two or more jobs, or if yours is a two-income household, you will have to increase your withholding or pay estimated taxes to compensate.
The Medicare Tax On Unearned Income: If you have non-wage (unearned) income, there is a new 3.8 percent surtax. This is based upon the lesser of:
- Your net investment income, or
- The excess of your modified adjusted gross income over the threshold amount ($250,000 for a joint return or surviving spouse, $125,000 for a married individual filing a separate return, and $200,000 for all others)
‘Net’ investment income includes your interest, dividends, annuities, rents, and capital gains reduced by your investment expenses.
Tax Tip: If you fall within these income thresholds, you should alter your portfolios to include excludable items such as tax-exempt bonds.
Note: The profit from the sale of your personal home has an exclusion of $250,000 if you’re single ($500,000 if married). The amount OVER the exclusion is subject to the new tax — not the full profit. By the way, the gain from the sale of your second or vacation home is investment income and therefore fully subject to this new tax.
Your Deductible Medical Expense Threshold: Do you itemize your deductions? Are you under age 65? The threshold percentage for claiming medical expenses on your schedule A increases from 7.5 percent to 10 percent.
Tax Tip: Before the end of this year, you may want to pre-pay or pay any outstanding medical bills such as orthodontics, laser eye surgery, or any other medical before the 10 percent deductible kicks in.
Employer Health Flex: The flexible spending account (FSA), which I have been advocating for a number of years, now has a maximum limit of only $2,500. This plan is, of course, for the pre-tax reimbursement of medical expenses for you, the employee, your dependents, or any other eligible beneficiaries you have for the year.
Tax Tip: You or your employer may want to consider establishing a Health Savings Account or a Medical Expense Reimbursement Plan to write-off the disallowed medical expenses (the 10 percent threshold, or the FSA).
And Now, For 2014: Let’s wait for 2014. They Republicans say that if they win the Senate and Presidency (and maintain control of the House), they will reverse all of the above, but don’t hold your breath.
And Now You Know Why You Need To Have Your Taxes Prepared By A Professional: An EA (Enrolled Agent), an RTRP (Registered Tax Return Preparer), or a CPA or Attorney, who specialize in tax.
Have a good week.
Weekly Quip: “The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery.” — Winston Churchill
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.