Congress and the White House have set themselves on the long road toward tax reform. Meanwhile, for us mere mortals, here are some important tax updates from the Internal Revenue Service: For 2018, the contribution limit for those who put money in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan will increase to $18,500, from $18,000.
Unfortunately, the limit on annual contributions to an Individual Retirement Account remains unchanged at $5,500 for 2018. The additional catch-up contribution limit for those 50 and over remains $1,000. The catch-up limit for those contributing to 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan also remains unchanged, at $6,000. All of the "phaseout" brackets have increased slightly, but because there are so many, check with your tax adviser or accountant or go online at IRS.gov.
We're grateful to CPA David Zalles in Blue Bell for the updates, and note the following: Trump's proposed tax overhaul suggests three — possibly four — tax rates, but not what the tax brackets will be for those paying the rates. Much is still unknown about the proposed tax reform, which likely will be pushed back to 2018.
"Congress could lower the brackets, which would mean that people near the top of current brackets could have increased taxes as they are reclassified into the next higher tax bracket. There are too many unanswered questions to be able to evaluate the proposed tax plan. Until the details are released, Congress has no way of determining who it affects, and to what extent, and tax professionals and taxpayers have no idea either," Zalles noted.
And then, there are the important deductions. For instance: What will become of large medical deductions for entrance fees to nursing homes, assisted living, and continuing care retirement communities, which are 100 percent deductible under current tax law? Or the multiple-child and child-care tax credits, and dependent-care benefits? More wait and see.
Finally, a reminder: The IRS does not call and leave urgent messages asking for a call back. If you receive a message and are told that, if you don't call back, a warrant will be issued for your arrest, that's a scam.
Meanwhile, in good news for pre-retirees and retired Americans, the monthly Social Security and Supplemental Security Income benefits for more than 66 million people will increase 2 percent in 2018, the Social Security Administration announced this month.
The cost-of-living adjustment begins with benefits payable to Social Security beneficiaries in January 2018. Increased payments to more than 8 million SSI beneficiaries will begin Dec. 29 of this year. (Some people receive both Social Security and SSI benefits.)
The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the U.S. Department of Labor's Bureau of Labor Statistics.
While 2 percent might seem low — come on, that inflation number can't possibly account for tuition hikes and health-care costs — it's at least slightly better than in the last few years.
Some other adjustments that take effect in January of each year are based on the increase in average wages. By that measure, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $128,700, from $127,200. Of the estimated 175 million workers who will pay Social Security taxes in 2018, about 12 million will pay more because of the increase in the taxable maximum.
The Social Security Act provides for how the COLA is calculated. To read more, visit the agency's website: www.socialsecurity.gov/cola.