Recent Changes to 5 Common Tax Laws
Recent Changes To 5 Common Tax Laws
If we have not met, I am Vicki Meadors, Client Associate and part of the Wyatt Hyrne team. My role on the team is to support the advisors help clients with a variety of strategy and planning matters including: estate plan reviews, cash-flow planning, gifting, charitable transfers, closely-held entities, 529 accounts, IRAs and related tax topics.
Before joining the team, I practiced law for over 20 years in the areas mentioned above, and also spent 4 years as a trust specialist with Wells Fargo.
There have been a lot of planning and tax legislation changes recently. I thought it might be helpful to outline 5 of the changes that may impact you.**
- Gift Tax Annual Exclusion Amount. The Gift Tax Annual Exclusion Amount increased to $17,000 ($34,000 for a married couple). This is the amount you can gift to an unlimited number of persons each year without having to file a Gift Tax Return and without causing any reduction to your Gift/Estate Tax Exemption Amount (described below). Any such gift should not be considered “income” to the recipient.
- Gift/Estate Tax Exemption Amount. The Gift/Estate Tax Exemption Amount increased to $12,920,000 ($25,840,000 for a married couple). This is the amount you can transfer during life or at death to your desired recipients without any gift or estate tax. However, if you make a gift to a person in excess of the Gift Tax Annual Exclusion Amount (mentioned above) during life, you should file a Gift Tax Return for informational purposes to tell the IRS that you have used part of your Gift/Estate Tax Exemption Amount. Again, any such gift should not be considered “income” to the recipient. Please note that, under current law, the Gift/Estate Tax Exemption Amount is scheduled to remain high for several years but will be roughly cut in half by 2026, unless the law changes again before such time.
- Required Minimum Distribution (“RMD”) Age for Traditional IRAs, 401ks and Similar Plans. If you turn 72 in 2023, your RMD age is now 73. For those that turn 74 in 2033 or thereafter, your RMD age now appears to be 75. The RMD Age is the time when you are generally forced to start taking distributions from traditional IRAs, 401ks and similar plans, subject to some exceptions. There is no RMD requirement for a Roth IRA for the original owner. If you fail to take your RMD in a timely manner, the penalty has also been reduced to 25% (or possibly 10% if corrected in a timely manner). Of course, if you are over age 59 ½, you can voluntarily access these types of assets if you need them.
- Qualified Charitable Distribution Amount from Traditional IRAs. In 2024, the Qualified Charitable Distribution Amount of $100,000 will start to be indexed for inflation. Under this tax rule, if you are 70 ½ years of age (or older), you can make a Qualified Charitable Distribution of up to $100,000 from a traditional IRA directly to a public charity, and the amount transferred to charity in this manner should NOT be included in your income. This rule does not apply to transfers made to a donor advised fund or private foundation.
- FICA Wage Base. The FICA Wage Base increased to $160,200. Wages above this level are no longer subject to the social security payroll tax (6.2% employer and 6.2% employee) but are still subject to the medicare payroll tax (1.45% employer and 1.45% employee). In addition, for wages exceeding $200,000 (single person) or $250,000 (married filing joint), there remains an additional 0.9% medicare tax due by the employee.
Authored by
Vicki Meadors
Senior Wealth Planner
CAR-0223-04381
**The tax rules summarized above are general rules that are very fact-specific. There are exceptions to every rule. Thus, if you want to discuss any of these tax rules in more detail as they relate to your specific situation, please call me or email any time. Always consult with your attorney and tax advisor before implementing any strategy.
**Please also note that some of these changes were enacted with the passage of the Secure Act 2.0 in December 2022. The Secure Act 2.0 contained many other law changes, which are summarized in the attached report.
Wells Fargo & Company and its affiliates do not provide legal or tax advice. Please consult your legal and/or tax advisors to determine how this information, and any planned tax results may apply to your situation at the time your tax return is filed. Any discussion of taxes and estate planning represents general information and is not intended to be, nor should it be construed to be, legal or tax advice. Tax laws or regulations are subject to change at any time and can have a substantial impact on your actual situation.
