No new legislation, but still higher taxes
by William G. Lako, Jr.
January 24, 2014 12:28 AM | 1438 views | 1 1 comments | 65 65 recommendations | email to a friend | print
William G. Lako Jr.<br>Business Columnist
William G. Lako Jr.
Business Columnist
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This time last year, I spent a good amount of time warning you about the higher taxes that came as a result of The American Taxpayer Relief Act of 2012. 2013 saw some major changes, and if you didn’t plan accordingly, you will probably notice the changes in April when your tax bill comes due. 2014 didn’t start with Congress passing major legislation in the wee hours of the holiday weekends, but there are still plenty of changes you need to be aware of.

Most intriguingly, some individuals without health insurance will owe a penalty. While many of the provisions in the Patient Protection & Affordable Care Act were delayed, the individual mandate was not. In 2014, you must have minimum essential health care coverage or pay a fee. The fee is the greater of 1 percent of your yearly household income with the maximum penalty equal to the national average yearly premium for a bronze plan, or $95 per person ($47.50 per child under 18) with a family cap of $285. There are a slew of exemptions for those with incomes below the filing requirement, financial hardships or unaffordable coverage options. You won’t have to pay any penalties or account for coverage until you file your 2014 federal tax return in 2015. Additionally, the law prohibits the IRS from collecting any payment you owe through liens or levies, but the IRS may withhold any refund you are due to cover any penalty.

The Social Security wage base increased by $3,300 this year, which means as an employee, you’re paying 7.65 percent on the first $117,000 you earn. As employers know, they pay the other half of the employment taxes. Once you pass that threshold, you continue to pay 1.45 percent in Medicare tax on all of your income. Of course, if you earn more than $200,000 for singles, $250,000 for couples, you face an additional 0.9 percent Medicare surtax. Keep in mind, when your employer looks at your wages to determine if they need to withhold an additional 0.9 percent of your salary, they are not taking into consideration your spouse’s income. If a husband and wife both earn $150,000, neither of their employers will withhold this tax because individually, they are below the threshold. However, together they make $50,000 above the threshold for a married couple filing jointly. The additional tax must be calculated on the return.

The Medicare surtax went into effect in 2013, so many taxpayers will discover they under withheld when they complete their 2013 taxes this spring. If you find yourself in this situation in April, you’ll want to make adjustments for 2014.

Speaking of Medicare, if you are a senior and you accelerated income into 2012 to avoid the potential higher capital gains taxes in 2013, you may end up paying a higher premium for Medicare Part B and prescription drug coverage this year. The Social Security Administration uses the most recent tax return the IRS provides, which is often the return two years prior to the year for which you must pay an income-related premium. Basically, if your modified adjusted gross income was above $170,000 for married filing jointly, you will likely have to pay higher Medicare premiums.

Computing your taxes is not for the faint of heart. These are just a few of the changes that may affect you this year. Next week, I’ll take a look at some of the changes that may affect small-business owners.

Comments
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mary jo
|
January 27, 2014
what is the maximum penalty if you don't have health insurance. I know it is a percentage of the bronze plan, but am unsure what that may be.

thanks

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