IRS inflation and cost of living adjustments impacting you

2009 Inflation-adjusted Amounts: To keep pace with inflation, the IRS modified dozens of tax benefits for 2009. For example, the (1) value of each personal and dependency exemption for most taxpayers will be $3,650 (up $150 from 2008); (2) standard deduction will be $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350); (3) tax-bracket thresholds will increase for each filing status; (4) Section 179 limit will be $133,000; and (5) annual gift exclusion will be $13,000. Rev. Proc. 2008-66, 2008-45 IRB .

2009 Pension Plan Amounts: The IRS published cost-of-living adjustments to various pension plan and related amounts for 2009. For instance, the (1) benefit limit for defined benefit plans will increase from $185,000 to $195,000; (2) defined contribution plan limit will go up from $46,000 to $49,000; (3) compensation limit for determining benefits and contributions will increase from $230,000 to $245,000; (4) definition of a highly compensated employee will go from $105,000 to $110,000; (5) elective deferral limit will go from $15,500 to $16,500; (6) SEP contribution threshold will increase from $500 to $550; and (7) SIMPLE retirement account limit will increase from $10,500 to $11,500. News Release IR-2008-118 .

2009 Social Security Wage Base: The social security wage base will increase from $102,000 in 2008 to $106,800 in 2009. As in prior years, there is no limit to the wages subject to the Medicare tax, so all covered wages are subject to the 1.45% tax. The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, remains at 7.65%, while the self-employment tax rate remains at 15.3%. The threshold for coverage for domestic employees will be ,700 in 2009.

Have questions? I’m here to help.