October Tidbits
2013 Pension Plan Limitations Are Announced
On October 18, 2012, the Internal Revenue Service announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2013. Because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment, many of the pension plan limitations will change for 2013. Some of the highlights include:
- 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 increases by $500 to $17,500.
- The limit on annual contributions to an Individual Retirement Arrangement (IRA) rises from $5,000 to $5,500.
- 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 modified adjusted gross incomes (AGI) between $59,000 and $69,000, an increase 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, an increase from $92,000 to $112,000 in 2012. 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 in 2012.
- The AGI phase-out range for taxpayers making contributions to a Roth IRA was $173,000 to $183,000 in 2012 and in 2013 is $178,000 to $188,000 for married couples filing jointly. For singles and heads of household, the income phase-out range was $110,000 to $125,000 in 2012 and is $112,000 to $127,000 in 2013. The phase-out range remains $0 to $10,000 for a married individual filing a separate return who is covered by a retirement plan at work.
- The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $59,000 for married couples filing jointly, up from $57,500 in 2012; $44,250 for heads of household, up from $43,125; and $29,500 for married individuals filing separately and for singles, up from $28,750
See Sections 401 – 416 of the Internal Revenue Code for more detail on the unchanged and adjusted limitations.
Various Tax Benefits Change in 2013
On October 18, 2012 the Internal Revenue Service announced changes to more than two dozen tax provisions for tax year 2013 due to annual inflation. Below is a list of a few of the changes:
- The annual exclusion for gifts rises to $14,000 for 2013, up from $13,000 for 2012.
- The amount used to reduce the net unearned income reported on a child’s tax return subject to the “kiddie tax,” is $1,000, up from $950 for 2012.
- The foreign earned income exclusion rises to $97,600, up from $95,100 in 2012.
More details will be published in an IRS bulletin on November 5, 2012.
IRS Return Preparation Program
A report filed on July 27, 2012 by the Treasury Inspector General for Tax Administration found that 51% of the tax returns filed by the IRS’s volunteer program in 2012 had mistakes. Sixty percent of those returns with errors cost the tax payer refund dollars they were entitled to.
