Below is a brief summary of reporting foreign accounts, gifts and inheritances. Please note that the penalties for non-compliance can be onerous.
If you inherit or receive a gift from a foreign person of more than $100k:
If you have a foreign account open at any time during the calendar year, no matter how low the balance:
- Complete the questions at the bottom of the Schedule B attached to your personal return
- Check the boxes stating that you have a foreign account open, no matter how low the value
If you have foreign accounts open that exceed $10k in any calendar year:
If you are married filing jointly and have foreign accounts with a combined value of more than $150k during the year or more than $100k at 12/31, or any other taxpayer with a combined value of more than $75k during the year or more than $50k at 12/31:
Most years, the government bumps up the maximum Social Security taxes that you can pay. For 2024, the maximum wage base jumps to $168,600, an increase of $8,400, or 5.2%, over the max of $160,200 that was in place for 2023.
At a rate of 6.2%, the maximum Social Security taxes that your employer will withhold from your salary is $10,453. This is $521 higher than the 2023 max of $9,932. Employers then match any Social Security taxes withheld from their staff’s salaries.
Higher Medicare Taxes Due To The Affordable Care Act Passed In 2012:
Enacted more than ten years ago, the employee portion of the Medicare tax jumps from the current rate of 1.45% to 2.35% on earned income in excess of $200k for single individuals and $250k for married couples filing a joint tax return. As of now, the employer will continue to match their employees’ Medicare taxes at a rate of 1.45%, which means the total marginal Medicare tax will be 3.8% for high-income taxpayers. This tax is reported on the Form 8959.
For example, if you’re single, and earn wages of $500k from your job, expect to pay $2,700 in additional Medicare taxes (($500k – $200k) * .9%) for 2013 and beyond.
To increase taxes for high-income individuals even more, the Medicare tax continues to apply to unearned income. Anyone with income over the $200k or $250k threshold should expect to pay Medicare taxes at a rate of 3.8% on interest, dividends, capital gains, and net rental income (except if you rent office space you own to your practice) in addition to any federal and state income taxes due on this income. This tax is reported on the Form 8960.
Calculating the Self-employment Tax:
If you’re self-employed and earn more than $400 in net profit from your business, you’re subject to Social Security and Medicare taxes as well. Known as the “self-employment tax”, you’ll need to complete a Schedule SE to calculate this tax, and then report the amount due on your Form 1040 in addition to your federal income taxes due.
The self-employment tax is based on a Social Security tax rate of 12.4% and a Medicare tax rate of 2.9%. These rates are double those paid by employees, since a self-employed person must pay both the employee’s portion and the employer’s portion of both taxes. Remember, when you work as an employee, your employer matches the Social Security and Medicare taxes withheld from your pay.
Unlike most other taxes, when dealing with self-employment taxes, the more you earn, the less you pay.
Even if your parent files their own personal income tax return and doesn’t meet the criteria for you to claim them as a dependent on your own tax return, you might still have the opportunity to deduct their medical expenses when you file your taxes. If you are responsible for providing more than half of your parent’s financial support, you can potentially claim the medical expenses you’ve paid on their behalf throughout the year as a tax deduction. The key to this deduction is the total medical expenses, including those incurred by your parent and your family, that exceed 7.5% of your adjusted gross income (AGI) as stated on your tax return.
In many cases, the medical expenses for your parent are related to care received at a healthcare facility designed to cater to elderly individuals. When your parent is at such a healthcare facility and receives qualifying medical treatment, these expenses can typically be fully deducted on your taxes. This deduction may also extend to lodging and meal expenses. Meal and housing costs for a patient at a medical facility are generally considered fully deductible as medical expenses if the primary purpose of their stay is medical care rather than personal senior housing.
Typically, if your parent is no longer able to care for themselves independently or is suffering from a chronic illness, the costs associated with meals and housing are considered ancillary to their medical expenses and can be claimed as deductions on your taxes, provided you paid for these expenses and meet the support criteria mentioned above. According to the IRS, a chronically ill individual is someone who has been certified (at least annually) by a licensed healthcare practitioner as either unable to perform at least two activities of daily living without substantial assistance for at least 90 days or requiring substantial supervision due to severe cognitive impairment to protect their health and safety.
While healthcare facilities can often offer guidance on what costs qualify for a medical deduction, it’s advisable to have a follow-up discussion with your tax preparer to ensure a clear understanding of which expenses will be eligible for deduction on your tax return.
For 2023, the allowed max salary deferral for a 403b or 401k plan is $22,500 (or $30,000 if age 50 by the end of the year). If you have already funded an amount to an employer sponsored retirement plan via salary deferral, then you will be limited in your allowed salary deferral at a second place of employment in a year, whether you work a second job or change jobs throughout the year.
If you do overfund your allowed salary deferral to a 403b and/or 401k plan in a calendar year, then the excess (plus earnings on the amount overfunded through the date of correction) needs to be refunded by April 15th of the following calendar year. The overfunded amount plus earnings will be taxable in the calendar year overfunded but will not be subject to the 10% penalty when distributed from the plan back to you. The excess deferral and associated earnings distributed back to you are reported on a Form 1099-R.
Another consideration when you switch employers pertains to the retirement funds at your prior employer. You generally have the option of keeping those retirement funds invested in your former employer’s retirement plan.
Another option that may help simplify your tracking and management of your retirement funds over time, would be to instruct your prior employer’s retirement plan administrator to distribute the funds from that plan as a direct rollover into either your current employer sponsored retirement plan or into an Individual Retirement Account (IRA). Consolidating retirement accounts if you periodically switch employers will help you track to better track your retirement assets.
Heading into the last quarter of 2023, October is the perfect time of year to review your year-to-date paystubs in order to maximize pre-tax benefits and other withholding items. Examining your year-to-date paystub early in the final quarter of the year gives you a chance to make any needed adjustments before the opportunity passes by if you wait until the end of December.
Here are a few good questions to ask to see if you should make changes:
Are you on target to fund the maximum allowed 401k or 403b salary deferral amount?
For 2023 the maximum salary deferral is $22,500. Plus, if you are age 50 or older you are eligible to fund an additional “catch-up” amount of $7,500 making your total allowed contribution for 2023 $30,000. Turning age 50 at any time within the year allows you to fund the “catch up” provision as early as January 1 of the current year. You don’t need to wait until the actual day of turning 50 to begin funding the additional $7,500.
Did you switch jobs or work multiple jobs during the year and fund a 403b or 401k at each place of employment within this calendar year?
The 401k/403b max salary deferral is the total allowed salary deferral for employees from all places of employment during the calendar year. You are not allowed to fund the $22,500 ($30,000 including catch-up) maximum salary deferral limit at each separate place of employment.
Does your employer offer a pre-tax childcare and/or health Flexible Spending Account (FSA)?
Don’t forget, FSAs offered by your employer are “use it or lose it”. If you are funding an FSA for childcare or health care expenses, check your remaining balance available to be sure that the funds are fully used by year-end. Unless your employer has a rollover or a grace period feature, your unused funds at year end are forfeited back to the employer and not eligible to be carried over into the following year. However, if your employer has implemented the rollover option for your health FSA, then you can carryover up to $610 of unused funds from 2023 to 2024. Or, if your employer has implemented the grace period option (applicable to both dependent care and health FSAs), then the December 31 cutoff date is allowed to be extended until March 15 of the following year to use up remaining unused funds still available at the end of the year. For a health FSA, the max contribution limit for 2023 is $3,050 per individual. For a dependent care FSA, the max contribution limit for 2023 is $5,000 per household ($2,500 if married filing separately).
Are you taking advantage of a Health Savings Account (HSA), if offered by your employer?
If your health insurance plan is a “high deductible health plan” you are allowed to fund an HSA. Funding is made with pre-tax dollars. For 2023, the max contribution limits are $3,850 for self-only coverage and $7,750 for family coverage. If you are age 55 or older at the end of the year, then you can also fund an additional $1,000 into your plan. Plus, if your spouse is age 55 or older, he/she can establish a separate HSA and fund an additional $1,000 catch-up contribution into that account making your total family HSA contributions for 2023 $9,750. The major difference between the health FSA and an HSA is that the health FSA is “use it or lose it” at year-end while the HSA works more like an IRA where the unused funds remain in the HSA continuing to grow tax-free and available to be used for qualified medical expenses in future years.
Did you receive a large bonus or have some other significant compensation payout during the year?
The “federal supplemental withholding tax rate” is 22% on special compensation payments to employees. Typically for bonuses and other special compensation payments paid to you by your employer, federal taxes withheld from the payment are 22% of those taxable wages. If you are in a higher federal tax bracket than 22% (which is often the case), then federal taxes withheld will be too low and you may find yourself owing taxes next April. And if you are in a 35% or 37% federal tax bracket and the payout is significant, then your federal tax balance owed the following April tax filing date could be significant as well. A good idea would be to track down any paystubs reflecting special compensation amounts to see how federal taxes were withheld.