White House Proposal

White House proposal

(President President Trump Releases a One Page Plan):
Individual Tax Reform

• Reduce seven (7) tax brackets into three (3) tax brackets. 
• The current marginal rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. 
• Three new proposed rates of 10%, 25%, and 35%. 
• The administration has yet to identify the tax bracket income levels for these new rates? 
• Repeal the Affordable Care Act's (ACA) 3.8% net investment income tax imposed upon unearned income and capital gains of high-income taxpayers.
• Double the standard deduction.
• Limit itemized deductions to mortgage interest and charitable contributions.
• Repeal the estate tax.
• Repeal the Alternative Minimum Tax (AMT).
• Provide tax relief for families with child and dependent care expenses. 
• The administration has yet to clarify how this relief will differ from the current expenses under IRC §21.

Business Tax Reform

• Lower the business tax rate to 15%. While the current corporate tax rate is 35%, many small businesses  (S-Corp's P-Ships)  pass through their income via K-1's to the individual level. 
• The administration has yet to identify any rules which may be established to prevent individuals from creating pass-through entities to avoid being taxed at a lower business rate, rather than higher individual rate?  But there would be rules established to prevent this practice from taking place?
• Establish a territorial tax system. 
• Foreign earned income would generally be excluded from this system.
• Eliminate tax breaks for special interests. 
• Establish a "one-time tax" on corporate earnings realized and held overseas (on which tax is deferred).

Source: NAEA E@lert Newsletter April 28, 2017

Who is this guy named FICA?

Who is this guy named FICA?
FICA is the acronym for Federal Insurance Contributions Act. The acronym is often used in the US when referring to the combination of the Social Security tax and the Medicare tax.

Generally, all of an employee's earnings which are less than $117,000 in the calendar year 2014 are subject to payroll withholdings of 6.2% for the Social Security tax plus 1.45% for the Medicare tax. In addition, the employer is required to pay a similar amount. The result is that the employer must remit 15.3% (6.2% + 6.2% + 1.45% + 1.45%) of each employee's wages or salaries that are less than $117,000 in a year.  

A self-employed person must pay both the employee portion and the employer portion of the FICA tax.

There are specific rates that apply to an employee's annual earnings in excess of the FICA wage limit ($117,000 in 2014).

Additional Medicare Tax

Effective in 2013, the Additional Medicare Tax of 0.9% applies to earned income of more than $200,000 ($250,000 for married couples filing jointly). Employers withhold this tax on wages in excess of $200,000 regardless of an employee’s filing status.

The Additional Medicare Tax raised an individual wage earner’s portion on compensation above the threshold amounts to 2.35 percent from 1.45 percent; the employer-paid portion of the Medicare tax on these amounts remained at 1.45 percent. 

Net Investment Income Tax

Net Investment Income Tax is separate from the new Additional Medicare Tax, which also went into effect on January 1, 2013. You may be subject to both taxes, but not on the same type of income. The 0.9% Additional Medicare Tax applies to individuals’ wages, compensation, and self-employment income over certain thresholds, but it does not apply to income items included in Net Investment Income.

In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities.

Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.

Additionally, net investment income does not include any gain on the sale of a personal residence that is excluded from gross income for regular income tax purposes. To the extent the gain is excluded from gross income for regular income tax purposes, it is not subject to the Net Investment Income Tax.

If an individual has too little withholding or fails to pay enough quarterly estimated taxes to also cover the Net Investment Income Tax, the individual may be subject to an estimated tax penalty.

Social Security Cost-of-Living-Adjustment
Publication 15 (2014), (Circular E), Employer's Tax Guide

Net Investment Income Tax

Net Investment Income Tax
Starting in 2013, some taxpayers may be subject to the Net Investment Income Tax. You may owe this tax if you have income from investments and your income for the year is more than certain limits. Here are four things from the IRS that you should know about this tax:

1. Net Investment Income Tax.  The law requires a tax of 3.8 percent on the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a threshold amount based on your filing status.

2. Net investment income.  This amount generally includes income such as:

• interest
• dividends
• capital gains
• rental and royalty income
• non-qualified annuities

This list is not all-inclusive. Net investment income normally does not include wages and most self-employment income. It does not include unemployment compensation, Social Security benefits or alimony. Net investment income also does not include any gain on the sale of your main home that you exclude from your income.

After you add up your total investment income, you then subtract your deductions that are properly allocable to this income. The result is your net investment income. Refer to the instructions for Form 8960, Net Investment Income Tax for more on how to figure your net investment income or MAGI.

3. Income threshold amounts.  You may owe the tax if you have net investment income and your modified adjusted gross income is more than the following amount for your filing status:

Filing Status	Threshold Amount
Married filing jointly	$250,000
Married filing separately	$125,000
Single	$200,000
Head of household (with qualifying person)	$200,000
Qualifying widow(er) with dependent child	$250,000

4. How to report.  If you owe this tax, you must file Form 8960 with your federal tax return. If you had too little tax withheld or did not pay enough estimated taxes, you may have to pay an estimated tax penalty.

For more on this topic visit IRS.gov/aca. You can also get tax forms on IRS.gov or by mail by calling 800-TAX-FORM (800-829-3676)
Net Investment Income Tax FAQs
Tax Topic 559 - Net Investment Income Tax