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The IRS has released the annual inflation adjustments for 2026 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

The IRS has released the annual inflation adjustments for 2026 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

2026 Income Tax Brackets

For 2026, the highest income tax bracket of 37 percent applies when taxable income hits:

• $768,700 for married individuals filing jointly and surviving spouses,
• $640,600 for single individuals and heads of households,
• $384,350 for married individuals filing separately, and
• $16,000 for estates and trusts.

2026 Standard Deduction

The standard deduction for 2026 is:

• $32,200 for married individuals filing jointly and surviving spouses,
• $24,150 for heads of households, and
• $16,100 for single individuals and married individuals filing separately.

The standard deduction for a dependent is limited to the greater of:

• $1,350 or
• the sum of $450, plus the dependent’s earned income.

Individuals who are blind or at least 65 years old get an additional standard deduction of:

• $1,650 for married taxpayers and surviving spouses, or
• $2,050 for other taxpayers.

Alternative Minimum Tax (AMT) Exemption for 2026

The AMT exemption for 2026 is:

• $140,200 for married individuals filing jointly and surviving spouses,
• $90,100 for single individuals and heads of households,
• $70,100 for married individuals filing separately, and
• $31,400 for estates and trusts.

The exemption amounts phase out in 2026 when AMTI exceeds:

• $1,000,000 for married individuals filing jointly and surviving spouses,
• $500,000 for single individuals, heads of households, and married individuals filing separately, and
• $104,800 for estates and trusts.

Expensing Code Sec. 179 Property in 2026

For tax years beginning in 2026, taxpayers can expense up to $2,560,000 in section 179 property. However, this dollar limit is reduced when the cost of section 179 property placed in service during the year exceeds $4,090,000.

Estate and Gift Tax Adjustments for 2026

The following inflation adjustments apply to federal estate and gift taxes in 2026:

• the gift tax exclusion is $19,000 per donee, or $194,000 for gifts to spouses who are not U.S. citizens;
• the federal estate tax exclusion is $15,000,000; and
• the maximum reduction for real property under the special valuation method is $1,460,000.

2026 Inflation Adjustments for Other Tax Items

The maximum foreign earned income exclusion amount in 2026 is $132,900.

The IRS also provided inflation-adjusted amounts for the:

• adoption credit,
• earned income credit,
• excludable interest on U.S. savings bonds used for education,
• various penalties, and
• many other provisions.

Effective Date of 2026 Adjustments

These inflation adjustments generally apply to tax years beginning in 2026, so they affect most returns that will be filed in 2027. However, some specified figures apply to transactions or events in calendar year 2026.

Rev. Proc. 2025-32

IR-2025-103

The IRS has released the 2025-2026 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

The IRS has released the 2025-2026 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

1. the special transportation industry meal and incidental expenses (M&IE) rates,
2. the rate for the incidental expenses only deduction,
3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.

Transportation Industry Special Per Diem Rates

The special M&IE rates for taxpayers in the transportation industry are:

• $80 for any locality of travel in the continental United States (CONUS), and
• $86 for any locality of travel outside the continental United States (OCONUS).

Incidental Expenses Only Rate

The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.

High-Low Substantiation Method

For purposes of the high-low substantiation method, the 2025-2026 special per diem rates are:

• $319 for travel to any high-cost locality, and
• $225 for travel to any other locality within CONUS.

The amount treated as paid for meals is:

• $86 for travel to any high-cost locality, and
• $74 for travel to any other locality within CONUS

Instead of the meal and incidental expenses only substantiation method, taxpayers may use:

• $86 for travel to any high-cost locality, and
• $74 for travel to any other locality within CONUS.

Taxpayers using the high-low method must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1392. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

Notice 2024-68, I.R.B. 2024-41, 729 is superseded.

Notice 2025-54

The IRS has issued transitional guidance for reporting certain interest payments received on specified passenger vehicle loans made in the course of a trade or business during calendar year 2025. The guidance applies to reporting obligations under new Code Sec. 6050AA, enacted as part of the One Big, Beautiful Bill Act (P.L. 119-21).

The IRS has issued transitional guidance for reporting certain interest payments received on specified passenger vehicle loans made in the course of a trade or business during calendar year 2025. The guidance applies to reporting obligations under new Code Sec. 6050AA, enacted as part of the One Big, Beautiful Bill Act (P.L. 119-21).

Under Code Sec. 163(h)(4), as amended, "qualified passenger vehicle loan interest" is deductible by an individual for tax years beginning in 2025 through 2028. Code Sec. 6050AA requires any person engaged in a trade or business who receives $600 or more in such interest from an individual in a calendar year to file an information return with the IRS and statements to the borrowers. The information return must include the borrower’s identifying information, the amount of interest paid, loan details, and vehicle information.

Recognizing that lenders may need additional time to update their systems and that the Service must design new reporting forms, the Treasury Department and the IRS have granted temporary relief. For calendar year 2025 only, recipients may satisfy their reporting obligations by providing a statement to each borrower by January 31, 2026, indicating the total amount of interest received in calendar year 2025 on a specified passenger vehicle loan. This information may be delivered electronically, through online portals, or via annual or monthly statements.

No penalties under Code Sec. 6721 or 6722 will be imposed for 2025 if recipients comply with this transitional reporting procedure. The notice is effective for interest received during calendar year 2025. The IRS estimates that approximately 35,800 respondents will issue about 8 million responses annually, with an average burden of 0.25 hours per response.

Notice 2025-57

IR 2025-105

The IRS issued updates to frequently asked questions (FAQs) about Form 1099-K, Payment Card and Third-Party Network Transactions (Code Sec. 6050W). The updates reflect changes made under the One, Big, Beautiful Bill Act (OBBBA), which reinstated the prior reporting threshold for third-party settlement organizations (TPSOs) and provided clarifications on filing requirements, taxpayer responsibilities, and penalty relief provisions. The updates supersede those issued in FS-2024-03. More information is available here.

The IRS issued updates to frequently asked questions (FAQs) about Form 1099-K, Payment Card and Third-Party Network Transactions (Code Sec. 6050W). The updates reflect changes made under the One, Big, Beautiful Bill Act (OBBBA), which reinstated the prior reporting threshold for third-party settlement organizations (TPSOs) and provided clarifications on filing requirements, taxpayer responsibilities, and penalty relief provisions. The updates supersede those issued in FS-2024-03. More information is available here.

Form 1099-K Reporting Threshold

Under the OBBB, the reporting threshold for TPSOs has been restored to the pre-ARPA level, requiring a Form 1099-K to be issued only when the gross amount of payments exceeds $20,000 and the number of transactions exceeds 200. The lower $600 threshold established by the American Rescue Plan Act (ARPA) no longer applies. The IRS noted that while the federal threshold has increased, some states may impose lower thresholds, and TPSOs must comply with those state-level reporting requirements.

Taxpayer Guidance

The FAQs explain that a Form 1099-K reports payments received through payment cards (credit, debit, or stored-value cards) or payment apps and online marketplaces used for selling goods or providing services. All income remains taxable unless excluded by law, even if not reported on a Form 1099-K.

If a Form 1099-K is incorrect or issued in error, taxpayers should contact the filer listed on the form to request a correction. If a corrected form cannot be obtained in time, taxpayers may adjust the reporting on Schedule 1 (Form 1040) by offsetting the erroneous amount when filing their return.

New Clarifications and Examples

The updated FAQs include expanded examples to help taxpayers properly determine income and filing obligations:

• Sales of personal items – How to determine taxable gain or nondeductible loss on items sold through online platforms?
• Crowdfunding proceeds – When contributions are taxable income versus nontaxable gifts.
• Backup withholding – How failure to provide a valid taxpayer identification number (TIN) can result in withholding under Code Sec. 3406?
• Multiple Forms 1099-K – How to report combined or duplicate forms properly using Schedule 1 (Form 1040)?

Third-Party Filer Responsibilities

The FAQs reaffirm that merchant acquiring entities and TPSOs are responsible for preparing, filing, and furnishing Form 1099-K statements. There is no de minimis exception for payment-card transactions. Entities that submit payment instructions remain subject to penalties under Code Sec. 6721 and 6722 for failing to file or furnish correct information returns. TPSOs are not required to include Merchant Category Codes (MCCs), while merchant acquiring entities must do so where applicable.

Ticket Sales and Executive Order 14254

The updated FAQs also address Executive Order 14254, Combating Unfair Practices in the Live Entertainment Market, issued in March 2025. The IRS clarified that income from ticket sales and resales is includible in gross income and subject to reporting. Payment settlement entities facilitating these sales must issue Form 1099-K when federal thresholds are met, and non-PSE payors may be required to issue Form 1099-MISC or Form 1099-NEC for payments of $2,000 or more made after December 31, 2025.

Reliance and Penalty Relief

Although the FAQs are not published in the Internal Revenue Bulletin (IRB) and cannot be used as legal precedent, the IRS confirmed that taxpayers who reasonably and in good faith rely on them will not be subject to penalties that allow for a reasonable-cause standard, including negligence or accuracy-related penalties, if such reliance results in an underpayment of tax.

FS-2025-8

IR-2025-107

For 2026, the Social Security wage cap will be $184,500, and Social Security and Supplemental Security Income (SSI) benefits will increase by 2.8 percent. These changes reflect cost-of-living adjustments to account for inflation.

For 2026, the Social Security wage cap will be $184,500, and Social Security and Supplemental Security Income (SSI) benefits will increase by 2.8 percent. These changes reflect cost-of-living adjustments to account for inflation.

Wage Cap for Social Security Tax

The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

• a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
• a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

• a 12.4 percent OASDI tax; and
• a 2.9 percent HI tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2026, the wage base is $184,500. Thus, OASDI tax applies only to the taxpayer’s first $184,500 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $184,500.

There is no wage cap for HI tax.

Maximum Social Security Tax for 2026

For workers who earn $184,500 or more in 2026:

• an employee will pay a total of $11,439 in social security tax ($184,500 x 6.2 percent);
• the employer will pay the same amount; and
• a self-employed worker will pay a total of $22,878 in social security tax ($184,500 x 12.4 percent).

Additional Medicare Tax

Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

• $250,000 for married taxpayers who file a joint return;
• $125,000 for married taxpayers who file separate returns; and
• $200,000 for other taxpayers.

The annual wage cap does not affect the Additional Medicare tax.

Benefit Increase for 2026

Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2026 by 2.8 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.

Social Security Fact Sheet: 2026 Social Security Changes

SSA Press Release: Social Security Announces 2.8 Percent Benefit Increase for 2026

The IRS issued frequently asked questions (FAQs) addressing the limitation on Employee Retention Credit (ERC) claims for the third and fourth quarters of 2021 under the One, Big, Beautiful Bill Act (OBBBA). The FAQs clarify when such claims are disallowed and how the IRS will handle related filings.

The IRS issued frequently asked questions (FAQs) addressing the limitation on Employee Retention Credit (ERC) claims for the third and fourth quarters of 2021 under the One, Big, Beautiful Bill Act (OBBBA). The FAQs clarify when such claims are disallowed and how the IRS will handle related filings.

Limitation on Late Claims

ERC claims filed after January 31, 2024, for the third and fourth quarters of 2021 will not be allowed or refunded after July 4, 2025, under section 70605(d) of the OBBBA.

Previously Refunded Claims

Claims filed after January 31, 2024, that were refunded or credited before July 4, 2025, are not affected by this limitation. Other IRS compliance reviews, however, may still apply.

Withdrawn Claims

An amended return withdrawing a previously claimed ERC after January 31, 2024, is not subject to section 70605(d). The IRS will process such amended returns.

Filing Date

An ERC claim is considered filed on or before January 31, 2024, if the return was postmarked or electronically submitted by that date.

Processing of Other Items

If an ERC claim is disallowed under section 70605(d), the IRS may still process other items on the same return.

Appeals Rights

Taxpayers whose ERC claims are disallowed will receive Letter 105-C (Claim Disallowed) and may appeal to the IRS Independent Office of Appeals if they believe the claim was timely filed.

FS-2025-7

IR-2025-106

The IRS identified drought-stricken areas where tax relief is available to taxpayers that sold or exchanged livestock because of drought. The relief extends the deadlines for taxpayers to replace the livestock and avoid reporting gain on the sales. These extensions apply until the drought-stricken area has a drought-free year.

The IRS identified drought-stricken areas where tax relief is available to taxpayers that sold or exchanged livestock because of drought. The relief extends the deadlines for taxpayers to replace the livestock and avoid reporting gain on the sales. These extensions apply until the drought-stricken area has a drought-free year.

When Sales of Livestock are Involuntary Conversions

Sales of livestock due to drought are involuntary conversions of property. Taxpayers can postpone gain on involuntary conversions if they buy qualified replacement property during the replacement period. Qualified replacement property must be similar or related in service or use to the converted property.

Usually, the replacement period ends two years after the tax year in which the involuntary conversion occurs. However, a longer replacement period applies in several situations, such as when sales occur in a drought-stricken area.

Livestock Sold Because of Weather

Taxpayers have four years to replace livestock they sold or exchanged solely because of drought, flood, or other weather condition. Three conditions apply.

First, the livestock cannot be raised for slaughter, held for sporting purposes or be poultry.

Second, the taxpayer must have held the converted livestock for:

• draft,
• dairy, or
• breeding purposes.

Third, the weather condition must make the area eligible for federal assistance.

Persistent Drought

The IRS extends the four-year replacement period when a taxpayer sells or exchanges livestock due to persistent drought. The extension continues until the taxpayer’s region experiences a drought-free year.

The first drought-free year is the first 12-month period that:

• ends on August 31 in or after the last year of the four-year replacement period, and
• does not include any weekly period of drought.

What Areas are Suffering from Drought

The National Drought Mitigation Center produces weekly Drought Monitor maps that report drought-stricken areas. Taxpayers can view these maps at

https://droughtmonitor.unl.edu/Maps/MapArchive.aspx.

However, the IRS also provided a list of areas where the year ending on August 31, 2025, was not a drought-free year. The replacement period in these areas will continue until the area has a drought-free year.

Notice 2025-52

IR-2025-93

The IRS and Treasury have issued final regulations setting forth recordkeeping and reporting requirements for the average income test for purposes of the low-income housing credit. The regulations adopt the proposed and temporary regulations issued in 2022 with only minor, non-substantive changes.

The IRS and Treasury have issued final regulations setting forth recordkeeping and reporting requirements for the average income test for purposes of the low-income housing credit. The regulations adopt the proposed and temporary regulations issued in 2022 with only minor, non-substantive changes.

Low-Income Housing Credit

An owner of a newly constructed or substantially rehabilitated qualified low-income building in a qualified low-income housing project may be eligible for the low-income housing tax credit (LIHTC) under Code Sec. 42. A project qualifies as a low-income housing project it satisfies certain set-aside tests or alternatively an average income test.

Under the average income test, at least 40 percent (25 percent in New York City) of a qualified group of residential units must be both rent-restricted and occupied by low-income individuals. Also, the average of the imputed income limitations must not exceed 60 percent of the area median gross income (AMGI).

Recording Keeping and Reporting Requirements

The regulations provide procedures for a taxpayer to identify a qualified group of residential units that satisfy the average income test. This includes recording the identification in the taxpayer’s books and records, including a change in a unit’s imputed income limit. The taxpayer also must communicate the annual identification to the applicable housing agency.

The final regulations clarify the submission of a corrected qualified group when the taxpayer or housing agency realizes that a previously submitted group fails to be a qualified group. The housing agency is also allowed the discretion to permit a taxpayer to submit one or two lists qualified groups of low-income units to demonstrate compliance with the minimum set-aside test and the applicable fractions for the building.

(T.D. 10036)

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of October 2017.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of October 2017.

October 4

Employers. Semi-weekly depositors must deposit employment taxes for Sept 27–Sept 29.

October 6

Employers. Semi-weekly depositors must deposit employment taxes for Sept 30, Oct 1–Oct 3.

October 10

Employees who work for tips. Employees who received $20 or more in tips during September must report them to their employer using Form 4070.

October 12

Employers. Semi-weekly depositors must deposit employment taxes for Oct 4–Oct 6.

October 13

Employers. Semi-weekly depositors must deposit employment taxes for Oct 7–Oct 10.

October 16

Individuals. Individuals with automatic 6-month extensions file Form 1040, 1040A, or 1040EZ, and pay any tax, interest, and penalties due.

Corporations. Corporations who had timely requested an automatic six-month extension file calendar year income tax return (Form 1120) and pay any tax, interest and penalties due.

Employers. For those to whom the monthly deposit rule applies, deposit employment taxes and nonpayroll withholding for payments in September.

October 18

Employers. Semi-weekly depositors must deposit employment taxes for Oct 11–Oct 13.

October 20

Employers. Semi-weekly depositors must deposit employment taxes for Oct 14–Oct 17.

October 25

Employers. Semi-weekly depositors must deposit employment taxes for Oct 18–Oct 20.

October 27

Employers. Semi-weekly depositors must deposit employment taxes for Oct 21–Oct 24.

October 31

Employers. File Form 941 for third quarter of 2017 and deposit or pay any undeposited tax. Pay tax liability in full with timely filed return if less than $2,500. If the tax for the quarter was deposited timely, properly, and in full, deadline to file Form 941 is November 13.

Employers. Deposit federal unemployment tax owed through September if more than $500.

Certain Small Employers. Deposit any undeposited tax if tax liability is $2,500 or more for 2017 but less than $2,500 for the third quarter.

November 1

Employers. Semi-weekly depositors must deposit employment taxes for Oct 25–Oct 27.

November 3

Employers. Semi-weekly depositors must deposit employment taxes for Oct 28–Oct 31.

There are two important energy tax credits that can benefit homeowners in 2010: (1) the nonbusiness energy property credit and (2) the residential energy efficient property credit. Collectively, they are known as the "home energy tax credits." With the home energy tax credits, you can not only lower your utility bill by making energy-saving improvements to your home, but you can lower your tax bill in 2010 as well. Eligible taxpayers can claim the credits regardless of whether or not they itemize their deductions on Schedule A. Your costs for making these energy improvements are treated as paid when the installation of the item is completed.

Nonbusiness energy property credit

The American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) extended the nonbusiness energy credit for 2009 and 2010. The nonbusiness property credit equals 30 percent of a homeowner's expenses on eligible energy-saving improvements, up to $1,500 for both the 2009 and 2010 tax years. Qualifying expenses include costs of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass, asphalt roofs, as well as costs associated with the installation of these items. The costs of energy-efficient windows, skylights, and doors, and qualifying insulation also qualify for the credit. However, the costs of installing these items do not qualify. Since the credit amounts are combined for both 2009 and 2010, if you made energy improvements in 2009 to which you claimed part of the expenses, you must take that into consideration when claiming the credit in 2010 for qualified expenses. The credit applies only to your principal residence, and special rules apply to condo owners.

Residential energy efficient property credit

The credit rate for the residential energy property credit equals 30 percent of the cost of all qualifying improvements. The residential energy efficient property credit can be claimed for solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit. No cap exists on the amount of the credit available, except in the case of fuel cell property.

Caution. As in the case of the nonbusiness energy property credit, not all energy-efficient improvements qualify for this tax credit. As such, you should check the manufacturer's tax credit certification statement before purchasing or installing any energy-efficient property. We can help you determine your eligibility based on a certification statement.

Reporting

Both energy credits are claimed by eligible homeowners when they file their 2010 federal income tax return. While you do not get an immediate check from Uncle Sam since you claim it on your 2010 return filed in 2011, you might be able to lower your estimated tax payments or withholding immediately to enjoy the benefits of the credit earlier.

Both the nonbusiness energy property credit and the residential energy property credit are claimed and figured on Form 5695, Residential Energy Credits. Since these are credits, not deductions, they increase a taxpayer's refund or reduce the tax he or she owes. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A. Use Form 5695, Residential Energy Credits, to figure and claim these credits. Certain other credits you claim for the 2010 tax year, if any, will affect your computation of the home energy credits.

Health care reform is now law and many employers are asking how does it affect my business and my employees? The first thing to keep in mind is that reform is gradual. The health care reforms and tax provisions in the new health care reform package play out over time, with some taking effect this year or next year but others not until 2014 and beyond. However, the health care package imposes significant new responsibilities and taxes on employers and individuals so it is not too early to start preparing.

Two new laws

Health care reform is actually made up of two new laws. The first is the Patient Protection and Affordable Care Act of 2010, signed by President Obama on March 23. The second is the Health Care and Education Reconciliation Act of 2010, signed by the president on March 26. The Patient Protection Act, which reflects the Senate's original health care reform bill, provides the overall framework for reform. The Reconciliation Act was drafted in the House to make changes to the Patient Protection Act, especially in the area of cost-sharing and in some of the revenue raisers.

Employer responsibility

The final health care package, unlike earlier versions, does not include an employer mandate. However, any employer with more than 50 full-time employees that does not offer health insurance and has at least one full-time employee receiving a premium assistance tax credit or cost-sharing will pay a per-employee penalty. An employer with more than 50 full-time employees that offers coverage that the government deems unaffordable or fails to meet minimum standards and has at least one full-time employee receiving a premium assistance tax credit or cost-sharing also will pay a per-employee penalty. Small employers with less than 50 employees will not be penalized in any case. The penalty rules apply starting in 2014.

Small employers that provide health insurance coverage are eligible for a new tax credit. A sliding scale tax credit is available immediately in 2010 for qualified small employers. The IRS is expected to make guidance for the new credit a priority. If your small business offers or is thinking of offering health insurance to your workers, the credit could generate significant cost-savings. Please contact our office and we can discuss the details of the credit in depth.

Individual responsibility

Unlike employers, individuals have a mandate under the health care reform package. Beginning in 2014, most individuals will be responsible for maintaining health insurance coverage for themselves and their dependents. If they do not have minimum essential coverage, they will be liable for a penalty.

The health care package excludes many individuals from the mandatory coverage requirement. Any individual or family who currently has coverage can retain that coverage under a "grandfather" provision. Individuals with incomes below the federal filing threshold, religious objectors, individuals covered by Medicaid and Medicare and others are also exempt.

The health care package provides a premium assistance tax credit and cost-sharing to help make coverage more affordable. The premium assistance tax credit is calculated on a sliding scale based on the individual's income in relation to the federal poverty level. Cost-sharing reduces the cost of coverage for qualified individuals. The premium assistance tax credit and cost-sharing generally will be available after 2013.

High-dollar plans

One of the principal revenue raisers to fund health care reform is a new excise tax on high-dollar health insurance plans. The health care reform package imposes an excise tax of 40 percent on insurance companies or plan administrators for any health insurance plan with an annual premium in excess of $10,200 for individuals and $27,500 for families. The excise tax applies to the amount in excess of the $10,200/$27,500 levels. The thresholds are higher for individuals in high-risk occupations and individuals over age 55. The excise tax will not kick in until 2018.

Medicare additional tax and surtax

Changes to the hospital insurance (HI)(Medicare) tax also fund health care reform. These changes impact higher-income individuals and families.

The health care reform package increases the Medicare tax by 0.9 percent for individuals who receive wages in excess of $200,000 (the threshold increases to $250,000 for married couples who file a joint federal income tax return). Additionally, the new law imposes a 3.8 percent surtax (called the Unearned Income Medicare Contribution) on investment income for individuals with adjusted gross incomes above $200,000 ($250,000 for married couples filing jointly). Investment income includes income from interest and dividends.

The additional Medicare tax on wages and the additional Medicare contribution on investment income take effect in 2013, so taxpayers have some time to prepare. Please contact our office for more details about how these tax changes may impact you.

Flexible spending arrangements

Flexible spending arrangements (FSAs) are a very popular way to save and pay for health care expenses. One of the most attractive features is the ability to use FSA dollars for over-the-counter medications. The health care reform package ends that feature after 2010.

In 2011 and subsequent years, FSA dollars can only be used to pay for prescription medications (with some limited exceptions). In 2013, the health care reform package limits the amount of contributions to health FSAs to $2,500 per year. The $2,500 amount will be indexed for inflation after 2013.

More provisions

The health care reform package als

• Increases the AGI threshold for claiming the itemized deduction for medical expenses for regular tax purposes to 10 percent after 2012 with a delayed effective date for seniors;
• Extends dependent coverage up to age 26;
• Expands Medicaid eligibility;
• Requires states to establish insurance exchanges to help individuals and small employers obtain coverage;
• Increases the additional tax on distributions from health savings accounts (HSAs) not used for qualified medical expenses;
• Eliminates the employer deduction for Medicare Part D;
• Imposes annual fees on pharmaceutical manufacturers and health insurance providers;
• Imposes an excise tax on medical device manufacturers;
• Requires more corporate information reporting;
• Imposes new requirements on non-profit hospitals;
• Accelerates some corporate estimated income taxes in 2014;
• Imposes an excise tax on indoor tanning services;
• Codifies the economic substance doctrine; and
• Modifies the biofuel credit.

In the coming months and years, the IRS and other federal agencies will issue many new rules and regulations to implement health care reform. Our office will keep you posted of developments, and, as always, please contact us if you have any questions.