The Social Security Administration announced that the wage base for figuring the Social Security tax will rise from $117,000 in 2014 to $118,500 in 2015. The tax rate itself will remain unchanged at 6.2% resulting in a tax increase of $93 each for both the employee and the employer when wages reach $118,500 or more in 2015.
In addition to the Social Security Tax there is the Medicare tax which will not change. This is 1.45% for both the employee and the employer. Certain taxpayers may also encounter the 0.9% additional Medicare tax – this is dependent on the employee’s filing status and total earned income.
Note that those taxpayers that are self-employed pay both the employee and the employer components of these taxes.
A reminder to employers: As of January 1 of this year, you may no longer reimburse employees for their individual health insurance policies or pay the premiums directly to the insurance company on a pre-tax basis. Employers that continue to pay employee’s premiums or reimburse their payment must include these amounts in the employee’s taxable wages or be subject to substantial penalties. Only if the employer offers a group plan can pre-tax dollars be used for health insurance premiums.
With schools back in session, the IRS has issued a reminder to taxpayers not to overlook available tax credits for education expenses. Tax credits are applied directly against the income tax you owe. There are two available credits: the American Opportunity Tax Credit and the Lifetime Learning Credit. The American Opportunity Tax Credit can be up to $2,500 annually for an eligible student and is 40% refundable. That means you could get money back when the credit exceeds your tax bill. The maximum Lifetime Learning Credit is $2,000 and is not refundable. You can claim only one type of education credit per student each year.
If you requested a six-month extension to file your 2013 individual income tax return, you face a major deadline on October 15. That’s the final date for filing your 2013 return; the IRS does not give additional extensions except for in very limited cases.
It is important to understand that you should file your tax returns on time even if you can’t pay your tax in full. The IRS charges a late filing penalty of 5% of the balance due per month up to a maximum of 25%. On top of this, they also charge late payment penalties along with interest compounded daily. Each state also has its own schedule of penalties and interest.
Please contact Hawkinson, Muchnick & Associates if you need filing assistance.