2015 Tax Update
This year’s tax rules are in a state of flux. But changes are coming. Lawmakers chose to retroactively revive dozens of tax breaks for 2014, only to allow them to expire again as 2015 begins. So taxpayers will again face uncertainty this year as they make their business and investment decisions. We expect congress to renew all popular tax breaks again for 2015, although if the past is any guide, that might not happen until late in the tax year.
Now let’s turn to what’s new for 2015. The employer mandate starts to kick in. Companies with 100 or more full-time-equivalent employees must offer health coverage to full-timers… those employed at least 30 hours a week, or pay a tax. Starting in 2015, firms with 50 to 99 full-time-equivalent workers will be subject to the pay-or-play rules, and the coverage offer will be expanded to dependents, including kids under 26.
The fines for noncompliance are stiff. One hits firms that fail to offer coverage to at least 70% of full-time workers in 2015 even if one full-timer opts to buy insurance through a government exchange and receives a tax credit to subsidize the premium. For this year, the fine is $2,084 times the number of full-timers employed, less 80. Next year, the penalty is much stiffer. The required coverage jumps from 70% to 95% for full-time employees, and only 30 full-timers are disregarded when figuring the tax.
Another hits companies whose insurance is unaffordable. They’ll owe a tax equal to $3,126 for each full-timer who gets a tax credit for purchasing coverage on an exchange. Coverage is treated as affordable if the required premium contribution from an employee for self-only coverage doesn’t exceed 9.56% of the worker’s wages. To pass muster, the employer’s health plan must also provide “minimum value,” meaning that is must pay at least 60% of the costs of covered health services.
On tap: Employer reporting of worker health coverage. Starting in early 2015, firms with 50 or more full-time-equivalent employees must report 2015 insurance date for each full-timer to the Service and the worker on Form 1095-C. Small companies with fewer than 50 employees that provide self-insured coverage will use Form 1095-B for this purpose. The agency won’t delay implementing this reporting requirement, for this purpose. The agency won’t delay implementing this reporting requirement, which IRS needs to help enforce the individual mandate against folks without coverage.
Employers need to start preparing now for this new reporting obligation.
The individual mandate’s fine for going without insurance is higher in 2015. The tax is typically the greater of two amounts; The basic fine or an income-based levy. The basic fine is soaring to $325 a person ($162.50 for each family member under 18), with a ceiling of $975… up to $230 and $690, respectively. And the income-based levy doubles to 2% of the excess of household income over the tax return filing threshold.
The income levels to qualify for the health premium credit also increase.
The credit available only to those with should hold incomes between 100% and 400% of the federal poverty level: $11,670 to $46,680 for singles and $23,850 to $95,400 for a family of four. People eligible for Medicaid or other federal insurance don’t qualify.
The income tax brackets for 2015 are a tad wider than last year’s, because of mild inflation. This year’s tax rates did not change.
Standard deductions for 2015 rose a bit. Marrieds get $12,600. If one spouse is age 65 or older… $13,850. If both are… $15,100. Singles can claim $6,300… $7,850 if they’re 65. Household heads get $9,250 plus $1,550 more once they reach age 65. Blind people receive $1,250 more ($1,550 if unmarried and not a surviving spouse).
High-incomers lose their itemized deductions above a higher level this year. Their write-offs are slashed by 3% of the excess of AGI over $258,250 for singles, $284,050 for household heads and $309,900 for marrieds. But the total reduction can’t exceed 80% of itemizations. Medicals, investment interest, casualty losses and gambling losses (to the extent of winnings) are exempted from this cutback.
Personal exemptions increase to $4,000 for filers and their dependents. However, this tax break is phased out for upper-incomers. It is trimmed by 2% for each $2,500 of AGI over the same thresholds for the itemized deduction phase out.
The 20% top rate on dividends and long-term gains starts at a higher lever for 2015… singles with taxable income above $413,200, household heads over $439,000 and joint filers above $464,850. The 3.8% Medicare Surtax boosts the rate to 23.8%. The regular 15% maximum rate applies for filers with incomes below these amounts, except that filers in the 10% or 15% income tax bracket sill get the special 0% rate.
AMT exemptions tick upward for 2015. They increase to $83,400 for couples and $53,600 for both singles and heads of household. The phase out zones for the exemptions start at higher income levels as well. Above $158,900 for couples and $119,200 for single filers and household heads. Also, the 28% AMT tax bracket kicks in a little later in 2015… above $185,400 for alternative minimum taxable income.
The Social Security wage base increases this year to $118,500, up to $1,500 from the cap for 2014. The tax rate imposed on employers and employees remains 6.2% and the employer’s share of Medicare tax stays at 1.45% of all pay. They employee’s share is 1.45%, but the 0.9% medicare surtax kicks in for singles with wages exceeding $200,000 and couples earning over $250,000. The surtax doesn’t affect the employer’s share. Self-employeds are also subject to the surtax.
Social Security benefits rise 1.7% in 2015, on account of low inflation. The earnings limits are heading up, too. People who turn 66 this year do not lose any benefits if they make $41,880 or less before they reach that age. Individuals between ages 62 and 66 by the end of 2015 can make up to $15,720 before they lose any benefits. There’s no earnings cap once a beneficiary turns 66.
The amount needed to qualify for coverage climbs to $1,220 a quarter. So earning $4,880 anytime during 2015 will net the full four quarters of coverage.
The basic Medicare Part B premium remains $104.90 per month in 2015. But upper –income seniors still have to pay higher part B and D premiums if their modified adjusted gross income for 2013 exceeded $170,000 for couples of $85,000 for singles people. Modified AGI is AGI plus any tax-exempt interest, EE bond interest that’s used for education and excluded foreign earned income. EE bond interest that’s used for education and excluded foreign earned income. The 2015 Part B surcharge doesn’t change, while the Part D add-on rises slightly. The total surcharges on upper-incomers can be as large as $301.60 a month.
The annual caps on deductible contributions to HSAs inch up this year. The ceilings rise slightly to $6,650 for account owners with family coverage and to $3,350 for self-only coverage. Folks born before 1961 can put in $1,000 more. The limits on out-of-pocket costs, such as deductibles and copayments, will increases to $12,900 for people with family coverage and to $6,450 for individual coverage. Minimum policy deductibles increase to $2,600 for families and $1,300 for singles.
The limits on deducting long-term-care premiums are a little higher. Taxpayers who are age 71 or older can write off as much as can write off as much as $4,750 per person. Filers age 61 to 70… $3,800. Those who are 51 to 60 can deduct up to $1,430. Individuals age 41 to 50 can take $710. And people age 40 and younger… $380.
The adoption credit can be taken on up to $13,400 of costs, $210 boost. If the credit is more than a filer’s tax liability, the excess is not refundable. The full $13,400 credit is available for a special needs adoption, even if it cost less. The credit starts to dry up for filers with AGIs over $201,010 and ends at $241,010.
The exclusion for U.S. taxpayers working abroad is a bit higher… $100,800. But the caps on transit passes and commuter vans fall sharply once again to $130 a month. In late 2014, congress reinstated the $250 cap, but only for 2014. The monthly limitation on employer-provided tax-free parking benefits remains $250.
Employees covered by health flex plan can defer up to $2,550… a $50 hike.
The income caps are higher for tax-free EE bonds used for education. The exclusion starts phasing out above $115,750 of AGI for married couples and $77,200 for singles. It ends when AGI hits $145,750 and $92,000 respectively.
The lifetime learning credit also starts phasing out at higher income levels… from $55,000 to $65,000 of AGI for singles and $110,000 to $130,000 for couples.
The kiddie tax has a little less bite. The first $1,050 of unearned income of a dependent who doesn’t work is tax-free, a $50 hike. The next $1,050 is taxed at 10% and any unearned income over $2,100 is taxed at the parents’ rate.
Many key dollar limits on retirements plans are a little higher this year: The maximum 401(k) contribution rises to $18,000, up $500 from 2014. Individuals who were born before 1966 are allowed to put in as much as $24,000. These paying limits apply to 403 (b) and 457 plans as well. The ceiling on SIMPLEs increases to $12,500… $15,500 for individuals who are age 50 or older this year.
Retirement plan contributions can be based on up to $265,000 of salary. The paying limitation for defined contribution plans increases to $53,000. Anyone making over $120,000 is highly paid for plan discrimination testing.
The income ceilings on Roth IRA contributions have ticked upward. Contributions phase out at AGIs of $183,000 to $193,000 for couples and $116,000 to $131,000 for singles.
Deduction phaseouts for regular IRAs start at higher levels as well, ranging from $98,000 to $118,000 of AGI for couples and from $61,000 to $71,000 for singles. If only one spouse is covered by a plan, the phaseout zone for deducting a contribution for the spouse who isn’t covered begins at $183,000 of AGI and finishes at $193,000.
The IRA and Roth paying caps remain at $5,500… $6,500 for those 50 and up.
And the partial credit for retirement plan paying phases out at higher levels.
For marrieds… at AGIs over $61,000. Household heads… $45,750. Singles… $30,500.
The estate and gift tax exemption for 2015 jumps to $5,430,000. The estate tax rate remains at 40%. The gift tax exclusion stays the same…. $14,000 per done. Up to $1,100,000 of farm or business realty can receive discounted estate tax valuation.
And more estate tax qualifies for an installment payment tax break. If one or more closely held businesses make up greater than 35% of an estate, as much at $588,000 of tax can be deferred, and IRS will charge only 2% interest.
The standard mileage rate rises to 57.5 cents a mile for business driving, up 1.5 cents. The rate falls to 23 cents a mile for medical travel and moving and remains at 14 cents for charitable driving. Standard rate users can also deduct the cost of parking and tolls.
Expensing is slashed. Only $25,000 of assets qualify, down from $500,000, and the $25,000 phases out once more than $200,000 of assets are put in service.
50% bonus depreciation lapsed, as have other breaks, such as the R & D credit and 15-year depreciation for restaurant renovations and leasehold improvements.
Lawmakers will have to find time in 2015 to address the expired provisions. We will keep you informed of any developments in this area….
Please do not hesitate to call us with any questions or guidance you need to help you navigate through this maze.
Best wishes for your continued success
Marc M Asheghian Company, Inc.