Happy New Year! It’s already time to start your 2012 tax planning! (I know, I know. You haven’t even started on your 2011 tax return!) Anyway, you need to get off to a good start in 2012. The first place to start is with your paycheck. The following are some items to consider:
FICA limits: To plan your take-home pay, please note that the employee’s FICA percentage remains at 4.2% for the first two months of 2012. After that, stay tuned…. In addition, the salary threshold for 2012 has risen to $110,100. The Medicare rate remains at 1.45%, and there is no salary limit.
CA SDI limits: The rate on your California SDI withholding has decreased from 1.2% to 1.0% in 2012; however, the salary limit has increased to $95,585.
Check your withholding: Did you have too much or too little withheld from your paycheck last year? Now’s the time to make the change. Figure out how much you should have withheld for the year and change your allowances accordingly. If you need help figuring your appropriate withholding, go to the IRS Withholding Calculator. Next, complete a new Form W-4 and give to your employer’s payroll department.
Maximize your 401(k) contribution: The maximum you can contribute in 2012 has risen to $17,000 per year ($22,500 if you are over 50). Remember, the only time you can contribute to your 2012 401(k) plan is in 2012. Also, this is one of the few tax benefits that doesn’t get phased out due to adjusted gross income limits. If your employer matches any of your contribution, even better—this is free money!
Health Savings Account (HSA) limits: If you have an HSA plan at work, the 2012 HSA contribution limits have increased to $3,100 for individuals, and $6,250 for families. If you are over 55, you can contribute an additional $1000. Even if you don’t think you’ll use all of this contribution in 2012, it carries over indefinitely, and can be withdrawn tax-free for qualified medical expenses. You can take distributions for non-medical purposes without penalty starting at age 65, although they would still be subject to ordinary taxation. So, it’s almost like another type of retirement savings vehicle.
Flexible Spending Account (FSA) limit: There is no specific limit on this contribution, as it is currently determined by your employer, and is affected by other benefits such as participation in an HSA and dependent care benefits. It is slated to be capped at a $2,500 maximum per employee in 2013. Remember, this is a “use-it-or-lose-it” benefit, so whatever you contribute in 2012, must be used for qualified medical expenses in 2012, and over-the-counter medicines are not eligible unless specifically prescribed by a doctor.
If you will have your 2011 tax return prepared by us or another tax professional, include a copy of your 2012 YTD paystub when send in your 2011 tax return preparation documents. Ask for recommendations on changes to your 2012 tax withholding and other contributions. Or, if you want to know how the above suggestions might affect you, please contact us.