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Educational Resources

By Jeffrey R. Wolfe, Senior Vice President, Manager of Wealth Planning Strategies

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While tax rates these days are historically low, there are still a few taxes that continue to affect more and more people each year.  Many tax thresholds are indexed for inflation, like the AMT tax exemption.  However, other tax thresholds like the .9% Medicare Health Insurance Surtax and the 3.8% Net Investment Income taxes are not indexed for inflation. For individuals earning more than $200,000 and married couples earning more than $250,000, the .9% surtax is levied on earned income, and the 3.8% Net Investment Income Tax also applies to passive earnings like interest, dividends, capital gains, etc.

It is important to note that these thresholds are not inflation adjusted, meaning as incomes rise more individuals will become subject to these taxes. Moreover, for the .9% surtax on earned income, employers are not required to withhold for this tax until you meet the applicable threshold from the employer’s payroll. If you have multiple income sources that collectively push you past the thresholds it is possible that employers will not withhold for this liability.

Also relevant for any high earners is the new cap on deducting state and local taxes (“SALT”).  Before the 2017 tax changes, taxpayers who itemized could deduct all SALT taxes (which generally includes state income tax, real estate/property tax, state sales tax, etc.)  With the new tax law this deduction is capped at $10,000, regardless of whether you are a single or married taxpayer.  Most miscellaneous itemized deductions have also been eliminated, along with the loss of personal exemptions.  As such, some taxpayers may face higher taxes due to these limitations.

If you are subject to these extra taxes or to the loss of significant deductions, be sure to update your withholdings and your investment portfolio decisions.  Be sure to work with your tax advisors and your Benjamin F. Edwards financial advisor to address these important decisions.

March 31, 2020 |