(Most) Increases Announced for 2013

Most tax breaks and benefits that are affected by annual increases through the Federal government have been announced during the course of the last week.  A quick breakdown of some of the more regular items follows: 

 

      1)      The 401(k) contribution limit has been increased by $500 to $17,500 from $17,000.  However, the catch up for those over age 50 still $5,500.  With that being said the maximum contribution for individuals over age 50 will increase to $23,000 in 2013 due to the increase in the base contribution level to $17,500.    

  

      2)      Contributions to individual retirement accounts (both Roth IRA and traditional IRAs) have increased to $5,500 from $5,000.  However, the catch up for those over age 50 is still $1,000.  So the maximum contribution for individuals over age 50 to an IRA is $6,500. 

   

      3)      The Roth IRA contribution limit has been increased again this year.  Individuals who file as married filing jointly who earn less than $178,000 can contribute to a Roth IRA (this is an increase from $173,000 in 2012).  Individuals who earn less than $112,000 can contribute the full amount as well before phase-outs kick in (the 2012 limit for individuals is $110,000). 

  

      4)      Social Security benefits for those already receiving them will increase by 1.7% in 2013. It is widely expected that the increase in Social Security benefits will be mostly offset by the increase in the cost of Medicare Part B premiums.   These premiums are expected to increase by $7 from $99.90 to $106.90 for couples with adjusted gross income (AGI) under $170,000 and for individual with AGI under $85,000.  However, the increase for Medicare Part B premiums has not yet been announced. 

      5)      In addition, the Social Security wage base was increased to $113,700 from $110,100.  In other words, the first $113,700 of employment income will be subject to Social Security taxes.  That tax is 4.2% for employees today and is subject to revert to 6.2% in 2013. 

      

      6)      The annual gift tax exclusion amount has been increased from $13,000 to $14,000.  This has been adjusting higher since the beginning of the last decade.  It was $10,000 as recently as 2001 and had been stuck at $13,000 since 2009.  Couples can double the amount if they elect to split the gift – meaning they can gift $28,000 to an individual without having to file a gift tax return.