“Fiscal Cliff” Bill

By now, of course, you’ve heard that Congress has passed legislation avoiding the tax increases of the “Fiscal Cliff.” Few of us who watched the process would consider it Washington’s finest hour. But we finally have answers to the questions that have made proactive planning so difficult. Here are the highlights: 

  • The Bush tax cuts are restored for income up to $400,000 ($450,000 for joint filers). Rates for income above those ceilings rise to 39.6% for ordinary income and 20% for qualified corporate dividends and long-term capital gains.
  • The Alternative Minimum Tax is finally indexed for inflation, meaning Washington won’t need to “patch” it every year.
  • The estate tax “unified credit” amount that you can bequeath tax-free remains at $5 million, indexed for inflation. The actual rate rises from 35% to 40%.
  • The 2% payroll tax holiday has expired, most likely for good.

The legislation also extends several popular tax breaks, like higher limits for business equipment expensing, deductions for student loan interest, and tax-free charitable gifts made directly from Individual Retirement Accounts.

We realize you’ve already heard this news. But we want you to know we’ll be studying the new law in the coming weeks and months to look for every opportunity to help you save. And of course, if you have any questions about how all this applies to you, don’t hesitate to call me at 610-440-4049.

IRS Updates to the 2013 Withholding Tables (finally)

IRS Provides Updated Withholding Guidance for 2013

IR-2013-1, Jan. 3, 2013

WASHINGTON — The Internal Revenue Service today released updated income-tax withholding tables for 2013 reflecting this week’s changes by Congress. 

The updated tables, issued today after President Obama signed the changes into law, show the new rates in effect for 2013 and supersede the tables issued on December 31, 2012. The newly revised version of Notice 1036 contains the percentage method income-tax withholding tables and related information that employers need to implement these changes.

In addition, employers should also begin withholding Social Security tax at the rate of 6.2 percent of wages paid following the expiration of the temporary two-percentage-point payroll tax cut in effect for 2011 and 2012. The payroll tax rates were not affected by this week’s legislation.

Employers should start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than Feb. 15, 2013. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2013.

Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.

As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.

If you previously updated your tax tables, please use this newly issued  Notice 1036 to replace those tables.  Let me know if you need help.