Happy New Year! It’s already time to start your 2015 tax planning! (I know, I know. You haven’t even started on your 2014 tax return!) Anyway, you need to get off to a good start in 2015. 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 although the employee’s FICA percentage remains at 6.2%, the salary threshold for 2015 has risen to $118,500. The Medicare rate also remains at 1.45%, and there is no salary limit. However, if you earn more than $200,000 if single and $250,000 if married filing joint, you will be subject to an additional 0.9% Medicare rate on the amount in excess of these thresholds.
CA SDI limits: The rate on your California SDI withholding has decreased to 0.09% in 2015; AND, the taxable wage limit has also decreased to $104,378.
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 2015 has risen to $18,000 per year ($24,000 if you are over 50). Remember, the only time you can contribute to your 2015 401(k) plan is in 2015! 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 2015 HSA contribution limits have increased to $3,350 for individuals, and $6,650 for families. If you are over 55, you can contribute an additional $1,000. Even if you don’t think you’ll use all of this contribution in 2015, it carries over indefinitely, and can be withdrawn tax-free for qualified medical expenses.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. However, it is capped at a $2,500 maximum per employee in 2015. Remember, this is a “use-it-or-lose-it” benefit, so whatever you contribute in 2015, must be used for qualified medical expenses in 2015, (unless your employer’s plan has opted for the $500 safe harbor) and over-the-counter medicines are NOT eligible unless specifically prescribed by a doctor.
If you will have your 2014 tax return prepared by us or another tax professional, include a copy of your 2015 YTD paystub when you send in your 2014 tax return preparation documents. Ask for recommendations on changes to your 2015 tax withholding and other contributions. Or, if you want to know how the above suggestions might affect you, please contact us.