After 12 years of uncertainty, the estate and gift tax laws were revised and made permanent. However, before we get too comfortable with these new provisions, let’s take a look at President Obama’s proposed 2014 budget. It looks like the newly-enacted estate and gift tax laws may be on the chopping block. The proposed budget set forth by the White House includes reducing the personal estate tax exemption amount to $3.5 million, without inflation adjustments, beginning in 2018. Gift tax exclusions would likewise be reduced, as well as some other inheritance-based taxes.
The IRS has issued proposed guidance pertaining to the Shared Responsibility payments now required under the Affordable Care Act. What this notice boils down to is that the IRS has provided various safe harbors employers may rely on when determining whether an employee is a full-time employee for purposes of the Affordable Care Act (and section 4980H of the Internal Revenue Code). While Notice 2012-58 is proposed guidance, it is also interim guidance, thus the IRS has given employers something they can comfortably use and rely on through 2014, and possibly longer.
The IRS is also seeking comments on the proposed guidance.
*Disclaimer: I will not comment on the substance of this Notice, as it was written by the one of my colleagues at the IRS Office of Chief Counsel.
With the fiscal cliff looming, the House and Senate have each put forward tax bills that are designed to hold off some of the tax increases that will go into effect on January 1, 2013. However, the Democrats and Republicans continue to battle over increased tax rates and government spending levels.
The estate tax is not addressed in the Senate bill. As a result, the exclusion amount would go to $1 million, and the tax rate for amounts over $1 million will increase to 55%.
The estate tax provision in the House bill proposes extending the current provisions through 2013. That means an exclusion amount of $5.12 million, and a tax rate of 35% for amounts over the exclusion.
The article linked below provides an excellent analysis of why it is so essential to review or establish your estate plan before the end of the year. The future of the estate tax is unknown, as I and many others have mentioned over the past several months. Acting now is the only way to be prepared for what is to come in the next year.
The IRS released Revenue Procedure 2012-41 last week, announcing the inflation-adjusted amounts for a wide range of items for calendar year 2013.
Of particular note are the minimum and maximum deductible amounts and maximum out-of-pocket amount for high deductible health plans for individuals who maintain a Medical Savings Plan. For self-only coverage, the deductible cannot be lower than $2,150 and cannot be higher than $3,200; the maximum out-of-pocket expenses to be paid is $4,300. For family coverage, which is any coverage other than self-only, the deductible cannot be lower than $4,300 and cannot be higher than $6,450; the maximum out-of-pocket expenses to be paid is $7,850.
The annual gift tax exclusion for 2013 is increasing to $14,000.
The IRS also issued a news release last week announcing 2013 pension plan contribution limits.
- The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $17,000 to $17,500.
- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $5,500.
- The limit on annual contributions to an IRA rises to $5,500, up from $5,000 in prior years.
- The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have adjusted gross incomes between $59,000 and $69,000, up from $58,000 and $68,000 in 2012. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $95,000 to $115,000, up from $92,000 to $112,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $178,000 and $188,000, up from $173,000 and $183,000.
- The adjusted gross income phase-out range for taxpayers making contributions to a Roth IRA is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
The 2013 inflation adjusted amounts for Health Savings Accounts was previously issued in Revenue Procedure 2012-26. For 2013, the annual contribution limit for an individual with self-only coverage is $3,250; the limit for an individual with family coverage is $6,450. The catch-up contribution for individuals age 55 or over remains unchanged at $1,000. To be an eligible individual for 2013, the high deductible health plan must have a minimum deductible of $1,250 for self-only coverage and $2,500 for family coverage. Additionally, the annual out-of-pocket expenses cannot exceed $6,250 for self-only coverage and $12,500 for family coverage.