WASHINGTON — The Internal Revenue Service today announced that employees in 401(k) plans will be able to contribute up to $19,500 next year.
The IRS announced this and other changes in Notice 2019-59, posted today on IRS.gov. This guidance provides cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.
Highlights of changes for 2020
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500.
The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.
The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020:
For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
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 $196,000 and $206,000, up from $193,000 and $203,000.
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.
Key limit remains unchanged
The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
Details on these and other retirement-related cost-of-living adjustments for 2020 are in Notice 2019-59, available on IRS.gov.
Businesses providing goods and services that are subject to excise tax must file a Form 720 quarterly to report the tax to the IRS.
What is excise tax? Excise taxes are charged on a wide variety of goods, services and activities. The tax may be imposed at the time of:
Sale by the manufacturer
Sale by the retailer
Use by the consumer
Many excise taxes go into trust funds earmarked for related capital projects, such as highway and airport improvements. Excise taxes are independent of income taxes. People pay excise taxes on things like gasoline, indoor tanning, airline tickets and tires.
Since the excise cost is usually included in the price, the seller or manufacturer is responsible for sending these tax payments to the IRS and filing Form 720.
When to file? Businesses must file the form for each quarter of the calendar year. Here are the due dates:
Quarter 1 – January, February, March: Deadline = April 30
Quarter 2 – April, May, June: Deadline = July 31
Quarter 3 – July, August, September: Deadline = October 31
Quarter 4 – October, November, December: Deadline = January 31
If the due date for filing a return falls on a Saturday, Sunday or legal holiday, the due date is the next business day.
How to file? While the IRS still accepts paper Forms 720, they encourage businesses to file electronically. To help excise taxpayers do this, the IRS posts the contact information on IRS.gov of all approved e-file transmitters for excise forms. Businesses can submit forms online 24 hours a day.
That said, not all excise forms can be filed electronically. Those that are available for electronic filing are:
Form 720, Quarterly Federal Excise Tax.
Form 2290, Heavy Highway Vehicle Use Tax.
Form 8849, Claim for Refund of Excise Taxes, Schedules 1, 2, 3, 5, 6 and 8.
When businesses file Form 720 electronically, they not only get confirmation the IRS received the form, but it reduces processing time and errors. To electronically file Form 720, business taxpayers will have to pay the provider’s fee for online submission.
One of the advantages of someone running their own business is hiring family members. But when including family members in business operations, certain tax treatments and employment tax rules apply. Here are some facts to know when working with a spouse, parent or child.
Both spouses carrying on the trade or business
If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. If so, they should report income or loss from the business on Form 1065. They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. But, the spouses can elect not to treat the joint venture as a partnership by making a qualified joint venture election.
Qualified joint venture
Spouses may elect treatment as a qualified joint venture instead of a partnership. A qualified joint venture conducts a trade or business where:
The only members are a married couple who file a joint return,
Both spouses materially participate in the trade or business, and
Both spouses elect not to be treated as a partnership.
Only businesses owned and operated by spouses as co-owners and not in the name of a state law entity, such as a limited partnership or limited liability company, are eligible for the qualified joint venture election. Find more information on joint ventures in Publication 541, Partnerships.
Spouses electing qualified joint venture status are sole proprietors for federal tax purposes. Each spouse must file a separate Schedule C to report their share of profits and losses. They don’t need an EIN unless their sole proprietorship must file excise, employment, alcohol, tobacco or firearms returns. One spouse cannot continue to use the partnership’s Employer Identification Number (EIN) for the qualified joint venture. The EIN must stay with the partnership; it’s used by the partnership for any year in which the business doesn’t meet qualified joint venture requirements.
If the business has employees, either of the spouses as sole proprietors may report and pay the employment taxes. The spouse, as an employer, must have an EIN for their sole proprietorship. If the business filed or paid employment taxes for part of the year under the partnership’s EIN, the spouse may be considered the employee’s “successor employer” for purposes of figuring whether wages reached the Social Security and federal unemployment wage base limits.
One spouse employed by another. The wages for the services of an individual who works for their spouse are subject to income tax withholding and Social Security and Medicare taxes but not to the Federal Unemployment Tax Act (FUTA).
Child employed by parents. Payments for the services of a child under age 18 aren’t subject to Social Security and Medicare taxes, if the business is a sole proprietorship or a partnership in which each partner is a parent of the child. Payments to a child under age 21 aren’t subject to FUTA. Payments are subject to income tax withholding, regardless of the child’s age.
Payments for the services of a child are subject to income tax withholding as well as Social Security, Medicare and FUTA taxes if they work for:
A corporation, even if it’s controlled by the child’s parent, or
A partnership, even if the child’s parent is a partner, unless each partner is a parent of the child.
Parent employed by child. The wages for the services of a parent employed by their child are subject to income tax withholding and Social Security and Medicare taxes. They’re not subject to FUTA tax.
Employees complete Form W-4 so that their employer can withhold the correct federal income tax from their pay. The IRS encourages everyone to use the Tax Withholding Estimator to help them make sure they have the right amount of tax withheld from their paycheck. The estimator automatically links to Form W-4, Employee’s Withholding Allowance Certificate, which they can then fill out and submit to their employer.
Now that fall is here and school has started, many teachers are dipping into their own pockets to buy classroom supplies. Doing this throughout the year can add up fast. Fortunately, eligible educators may be able to defray qualified expenses they paid in 2019 when they file their tax return in 2020.
Educators who work in schools may qualify to deduct up to $250 of unreimbursed expenses. That amount goes up to $500 if two qualified educators are married and file a joint return. However, neither spouse can deduct more than $250 of his or her qualified expenses when they file.
Taxpayers qualify for this deduction if they:
Teach any grade from kindergarten through twelfth grade.
Are a teacher, instructor, counselor, principal or aide.
Work at least 900 hours during the school year.
Work in a school that provides elementary or secondary education.
Qualified expenses include:
Professional development courses.
Computer equipment including related software and services.
Athletic supplies only for health and physical education.
Eligible taxpayers can claim this deduction when they file their taxes. The IRS encourages teachers to consider using tax software to help guide them through the process of claiming the deduction.
Many teachers may qualify to use online software for free with IRS Free File.
WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued Revenue Procedure 2019-40 and proposed regulations that provides relief to certain U.S. persons that own stock in certain foreign corporations.
The Revenue Procedure limits the inquiries required by U.S. persons to determine whether certain foreign corporations are controlled foreign corporations (“CFCs”). The Revenue Procedure also allows certain unrelated minority U.S. shareholders to rely on specified financial statement information to calculate their subpart F and GILTI inclusions and satisfy reporting requirements with respect to certain CFCs if more detailed tax information is not available. It also provides penalty relief to taxpayers in the specified circumstances.
Finally, the Revenue Procedure announces that the IRS intends to amend the instructions for Form 5471 to reduce the amount of information that certain unrelated minority U.S. shareholders of the CFC are required to provide. It will also limit the filing requirements of U.S. shareholders who only constructively own stock of the CFC solely due to downward attribution from another person.
The proposed regulations provide additional relief to taxpayers affected by the repeal of section 958(b)(4). These regulations also propose modifications to existing regulations that are intended to ensure, in certain appropriate circumstances, that the operation of certain rules is consistent with their application before the repeal of section 958(b)(4).
The repeal of section 958(b)(4) was part of the Tax Cuts and Jobs Act. For more information about this and other TCJA provisions, visit IRS.gov/taxreform.
Small business owners and others with tax questions can check out the IRS Video Portal to get more information on a wide range of topics. Taxpayers can visit the site to find videos and recorded webinars on topics such as:
New IRS Tax Withholding Estimator Tell your employees about the new IRS Tax Withholding Estimator. The new taxpayer-friendly tool on IRS.gov helps workers tailor the amount of income tax their employer should withhold from their paychecks and avoid unexpected results at tax time. The Estimator allows filers to target a tax due amount close to zero or a refund around $500.
A Charity’s Treatment of Volunteers Can Affect Tax Responsibilities
If your organization has employees or volunteers, it may have tax responsibilities. The Employment Issues course explains how charities classify employees, how to report employee wages, the rules regarding gifts to volunteers and filing requirements. Organizational leadership and volunteers should attend the Tax-Exempt Organization Workshop for important information on the benefits, limitations and expectations of tax-exempt organizations.
The 2019 Calendar Year Projections of Information and Withholding Documents for the United States and IRS Campuses (Publication 6961) is now available on SOI’s Tax Stats Web page. The publication presents multi-year projections (Calendar Years 2019–2027) of the number of information and withholding documents to be filed with the IRS by processing categories important to IRS planning operations, including form type and filing medium. Selected forecasts of paper returns are also shown by IRS processing campus locations.
See 3 ways that may help married couples boost their lifetime benefits.
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A couple with similar incomes and ages and long life expectancies may want to consider maximizing lifetime benefits by both delaying their claim.For couples with big differences in earnings, consider claiming the spousal benefit, which may be better than claiming your own.A couple with shorter life expectancies may want to consider claiming earlier.
Married couples may have some advantages when deciding how and when to claim Social Security. Even though the basic rules apply to everyone, a couple has more options than a single person because each member of a couple1 can claim at different dates and may be eligible for spousal benefits.
Making the most of Social Security requires some strategy to take advantage of the basic benefit rules, however. After you reach age 62, for every year you postpone taking Social Security (up to age 70), you could receive up to 8% more in future monthly payments. (Once you reach age 70, increases stop, so there is no benefit to waiting past age 70.) Members of a couple may also have the option of claiming benefits based on their own work record, or 50% of their spouse’s benefit. For couples with big differences in earnings, claiming the spousal benefit may be better than claiming your own.
What’s more, Social Security payments are guaranteed for life and should generally adjust with inflation, thanks to cost-of-living increases. Because people are living longer these days, a higher stream of inflation-protected lifetime income can be very valuable.
But to take advantage of the higher monthly benefits, you may need to accept some short-term sacrifice. In other words, you’ll have less Social Security income in the first few years of retirement in order to get larger benefits later.
“As people live longer, the risk of outliving their savings in retirement is a big concern,” says Ann Dowd, a CFP® and vice president at Fidelity. “Maximizing Social Security is a key part of how couples can manage that risk.”
A key question for you and your spouse to discuss is how long you each expect to live. Deferring when you receive Social Security means a higher monthly benefit. But it takes time to make up for the lower payments foregone during the period between age 62 and when you ultimately chose to claim, as well as for future higher monthly benefits to compensate for the retirement savings you need to tap into to pay for daily living expenses during the delay period.
But when one spouse dies, the surviving spouse can claim the higher monthly benefit for the rest of their life. So, for a couple with at least one member who expects to live into their late 80s or 90s, deferring the higher earner’s benefit may make sense. If both members of a couple have serious health issues and therefore anticipate shorter life expectancies, claiming early may make more sense.
How likely are you to live to be 85, 90, or older? The answer may surprise you. Longevity has been steadily increasing, and surveys show that many people underestimate how long they will live. According to the Social Security Administration (SSA), a man turning 65 today will live to be 84.3 on average and a woman will live to be 86.6 on average. For a couple at age 65, the chances that one person will survive to age 85 are more than 75%. Further, the SSA estimates that 1 in 4 65-year-olds today will live past age 90, and 1 in 10 will live past age 95.2
A couple with similar incomes and ages and long life expectancies may maximize lifetime benefits if both delay.
How it works: The basic principle is that the longer you defer your benefits, the larger the monthly benefits grow. Each year you delay Social Security from age 62 to 70 could increase your benefit by up to 8%.
Who it may benefit: This strategy works best for couples with normal to high life expectancies with similar earnings, who are planning to work until age 70 or have sufficient savings to provide any needed income during the deferral period.
Example: Willard’s life expectancy is 88, and his income is $75,000. Helena’s life expectancy is 90, and her income is $70,000. They enjoy working.
Suppose Willard and Helena both claim at age 62. As a couple, they would receive a lifetime benefit of $1,100,000. But if they live to be ages 88 and 90, respectively, deferring to age 70 would mean about $250,000 in additional benefits.
All lifetime benefits are expressed in today’s dollars, calculated using life expectancies of 88 and 90 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.
Strategy No. 2: Claim early due to health concerns
A couple with shorter life expectancies may want to claim earlier.
How it works: Benefits are available at age 62, and full retirement age (FRA) is based on your birth year.
Who it may benefit: Couples planning on a shorter retirement period may want to consider claiming earlier. Generally, one member of a couple would need to live into their late 80s for the increased benefits from deferral to offset the benefits sacrificed from age 62 to 70. While a couple at age 65 can expect one spouse to live to be 85, on average, couples who cannot afford to wait or who have reasons to plan for a shorter retirement, may want to claim early.
Example: Carter is age 64 and expects to live to 78. He earns $70,000 per year. Caroline is 62 and expects to live until age 76. She earns $80,000 a year.
By claiming at their current age, Carter and Caroline are able to maximize their lifetime benefits. Compared with deferring until age 70, taking benefits at their current age, respectively, would yield an additional $113,000 in benefits—an increase of nearly 22%.
All lifetime benefits are expressed in today’s dollars, calculated using life expectancies of 78 and 76 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.
Strategy No. 3: Maximize the survivor benefit
Maximize Social Security—for you and your spouse—by claiming later.
How it works: When you die, your spouse is eligible to receive your monthly Social Security payment as a survivor benefit, if it’s higher than their own monthly amount. But if you start taking Social Security before your full retirement age (FRA), you are permanently limiting your partner’s survivor benefits. Many people overlook this when they decide to start collecting Social Security at age 62. If you delay your claim until your full retirement age—which ranges from 66 to 67, depending on when you were born—or even longer, until you are age 70, your monthly benefit will grow and, in turn, so will your surviving spouse’s benefit after your death. (Get your full retirement ageOpens in a new window)
Who it may benefit: This strategy is most useful if your monthly Social Security benefit is higher than your spouse’s, and if your spouse is in good health and expects to outlive you.
Example: Consider a hypothetical couple who are both about to turn age 62. Aaron is eligible to receive $2,000 a month from Social Security when he reaches his FRA of 66 years and 6 months. He believes he has average longevity for a man his age, which means he could live to age 85. His wife, Elaine, will get $1,000 at her FRA of 66 years and 6 months and, based on her health and family history, anticipates living to an above-average age of 94. The couple was planning to retire at 62, when he would get $1,450 a month, and she would get $725 from Social Security. Because they’re claiming early, their monthly benefits are 27.5% lower than they would be at their FRA. Aaron also realizes taking payments at age 62 would reduce his wife’s benefits during the 9 years they expect her to outlive him.
All lifetime benefits are expressed in today’s dollars, calculated using life expectancies of 85 and 94 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.
If Aaron waits until he’s 66 years and 6 months to collect benefits, he’ll get $2,000 a month. If he delays his claim until age 70, his benefit—and his wife’s survivor benefit—will increase another 28%, to $2,560 a month. (Note: Social Security payout figures are in today’s dollars and before tax; the actual benefit would be adjusted for inflation and possibly subject to income tax.)
Waiting until age 70 will not only boost his own future cumulative benefits, it will also have a significant effect on his wife’s benefits. In this hypothetical example, her lifetime Social Security benefits would rise by about $69,000, or 16%.
Even if it turns out that Elaine is overly optimistic and she dies at age 90, her lifetime benefits will still increase approximately 34% and she would collect approximately $129,000 more in Social Security benefits than if they had both claimed at 62 (vs. both waiting until age 70 to claim Social Security).
In situations where the spouse’s Social Security monthly benefit is greater than their partner’s, the longer a spouse waits to claim Social Security, the higher the monthly benefit for both the spouse and the surviving spouse. For more on why it’s often better to wait until at least your FRA before claiming Social Security, read Viewpoints on Fidelity.com: Should you take Social Security at 62?
Social Security can form the bedrock of your retirement income plan. That’s because your benefits are inflation-protected and will last for the rest of your life. When making your choice, be sure to consider how long you may live, your financial capacity to defer benefits, and the impact it may have on your survivors. Consider working with your Fidelity financial advisor to explore options on how and when to claim your benefits.
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This information is intended to be educational and is not tailored to the investment needs of any specific investor.This article uses the Annuity 2000 mortality table to determine longevity, which is a narrower universe than the Social Security Administration’s. The Social Security Administration uses a mortality table that averages the entire nation. The Annuity 2000 table better reflects the typical Fidelity client, skewing toward a somewhat more educated and affluent individual with a slightly longer life span.1. On June 26, 2015, the U.S. Supreme Court issued a decision in Obergefell v. Hodges, holding that same-sex couples have a constitutional right to marry in all states and have their marriage recognized by other states. This ruling made it possible for same-sex couples to benefit from SSA programsOpens in a new window.2. https://www.ssa.gov/planners/lifeexpectancy.htmlOpens in a new windowLifetime benefits are determined by calculating the present values of the Social Security payments over time. The present values are calculated by discounting the Social Security payouts by an inflation-adjusted rate of return. The illustrations use the historical average yield of U.S. 10-Year TIPS for discounting.The benefit calculations and discounting in this article do not account for the effect of taxes. The after-tax discount rate for an individual could be very different from another depending on multiple factors, including the sources and levels of income. For individualized estimates, one could try the Retirement Estimator from the Social Security Administration. It assumes a person is in good health. Average longevity corresponds with a 50% chance of living to a stated age. Above-average longevity corresponds with a 25% chance of living to a stated age.The information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material effect on pretax and/or after-tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
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