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Estate Tax, Medicaid, Social Security Changes Ring In New Year


Posted on Jan 13, 2010

The new year brings with it several major tax changes that will have an impact on your tax returns. There’s both good news and bad news in 2010’s new rules and in what lies ahead:

-- The Medicare Part B premium will remain at $96.40 a month for about 75% of Social Security beneficiaries, thanks to a law that prevents Part B hikes when there is no cost-of-living adjustment. But the premium goes up to $110.50 a month for folks who sign up for Part B in 2010 and for those whose premiums are paid by Medicaid. Upper income seniors will pay even higher amounts. Singles with AGIs exceeding $85,000 and couples with AGIs over $170,000 will owe a fee based on their 2008 AGI, plus any tax-exempt interest, EE bond interest used for education and excluded foreign earned income. The maximum monthly premium of $353.60 is nearly four times the basic monthly charge.

-- The estate tax and the generation-skipping tax both disappeared on Jan. 1, and the top rate on the gift tax dropped to 35%. The downside: Also taking effect is a rule that replaces the date-of-death value rule as the basis for inherited assets with a system that starts with the decedent’s basis. Under that carryover basis regime, when the inherited assets are sold by heirs, they could exclude up to $1.3 million of gain -- $4.3 million for surviving spouses. The estate tax won’t stay dead for long, however: Congress is expected to reinstate it and the generation-skipping tax retroactively, and get rid of the carryover basis regime. But a return to last year’s $3.5-million estate tax exemption and 45% rate isn’t assured. A group of Senate Republicans and moderate Democrats will fight hard for a $5-million exemption and 35% top rate, and they may get their way.

 

For businesses:

-- The Social Security wage base remains at $106,800 in 2010, the first time it hasn’t budged since 1971. The reason: The law doesn’t allow the wage base to rise if there’s no cost-of-living increase in Social Security benefits. The tax rates won’t change, either: 6.2% for FICA tax and 1.45% for Medicare. Self-employed folks pay 15.3% on the first $106,800 of their net earnings and 2.9% on any amounts above that. But the relief is likely to be short-lived: There will be a whopping increase in the wage base when the next benefit hike takes effect.


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