Tax rules result in several limit changes every year. Most of the time, these changes are driven by the IRS regulatory process, based on existing tax laws. Some of these changes are automatic inflation-driven rules, while others are assessed each year and may or may not change.
For 2018 specifically, the tax bill passed in late 2017 will have additional significant impacts on limits. Knowing the new limits can help in personal financial planning. The major changes are provided below.
Social Security Payroll Tax Cap: The amount of income subject to social security taxes has been increased by $1,500 dollars to a total of $128,700 or a total payment of $7979.40. As a reminder, the 1.45% Medicare tax has no income limit.
Social Security Payments: Social security beneficiaries will receive an inflation adjustment of 2% above their current payment.
401K Contributions: This limit has been increased by $500 dollars to $18,500. The over 50 catch up limit remains at $6,000.
IRA Contributions: 2018 limits remain unchanged at $5,500 plus an over 50 $1,000 catch up limit.
FSA Limits: Flexible Spend Account limits have raised $50 to a total of $2650 for health accounts. Dependent care FSA is not subject to inflation adjustments. They have not been adjusted for several years and remain at $2500.
HSA Limits: Modest increases in HSA contribution for both individual and family accounts are scheduled in 2018. Individual account contributions move from $3,400 to $3,450. Family account contributions move from $6750 to $6900.
Standard Deduction: Taxpayers choose between itemizing deductions versus taking a standard deduction, with mortgage interest being the major element in making this decision for most taxpayers. Since the standard deduction has increased, the choice between itemizing and taking the standard deduction will change for many taxpayers. For example, the standard deduction for married, filing jointly has increased from $12,700 to $24,000.
The standard deduction change is the most visible and important change from the tax bill. Considering that 2018 is the inaugural year for the new tax regime, it is more important than ever to proactively assess a taxpayer’s total situation, while adjustments can be made. Earlier is always better. Please contact us