nanny tax

Article Dean Dorton

FICA base
Annual compensation to which Social Security tax applies is $142,800 for 2021 (up from $137,700 in 2020).

Social Security benefits
Individuals who are drawing Social Security benefits before attaining full retirement age will begin to suffer reductions in payments if they have earned income exceeding $18,960 in 2021 (up from $18,240 in 2020).

Adjustments for retirement accounts
The maximum annual addition to a defined contribution plan is increased to $58,000 for 2021 (up from $57,000 for 2020), and the corresponding maximum amount of compensation that can be considered as the base for retirement plan contributions is $290,000 for 2021 (up from $285,000 for 2020).

Individual Retirement Account (IRA) limits, elective deferral limits, and catch-up contribution limits have remained the same for 2021. So, even though the total retirement plan contribution has increased to $58,000, the maximum amount individuals can elect to contribute to employer-sponsored plans remains $19,500.

Year IRAs SIMPLE IRA Plans Other Employer Plans
Annual Contribution Catch-Up Contribution Elective Deferral Catch-Up Contribution Elective Deferral Catch-Up Contribution
2020 $6,000 $1,000 $13,500 $3,000 $19,500 $6,500
2021 $6,000 $1,000 $13,500 $3,000 $19,500 $6,500

Kentucky’s pension income exclusion
The amount of retirement income excludable from tax in Kentucky remains $31,110 for 2021.

Health savings accounts
The limits on contribution deductions for 2021 are $3,600 for self-only coverage (up $50 from 2020) and $7,200 for family coverage (up $100 from 2020). The additional “catch-up” contribution allowable for those age 55 or older remains $1,000.

Health flexible spending arrangements
The maximum voluntary employee salary reduction for employer-adopted FSAs (flexible spending arrangements) is $2,750 for 2021 (unchanged from 2020).

Estate tax
Federal estate, gift, and generation-skipping taxes will apply to cumulative subject transfers exceeding $11,700,000 in 2021, up from $11,580,000 in 2020.

Gift taxes
The annual exclusion for gifts per donee remains at $15,000 for 2021. The exclusion for gifts given to non-citizen spouses is increased to $159,000 (up from $157,000 in 2020).

Nanny tax
Cash wages paid for domestic service in the employer’s home of less than $2,300 are not subject to FICA in 2021 (up from $2,200 in 2020).

This article was originally published in News & Views (Dean Dorton’s quarterly newsletter).

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Article Dean Dorton

The CARES Act has increased the deduction limit on cash charitable donations from 60% to 100% of adjusted gross income (note that the contributions must be to public charities or churches, not private foundations or donor-advised funds). Contributions of most non-cash assets remain limited to 30% of adjusted gross income. For taxpayers who do not itemize their deductions, up to $300 of charitable contributions are allowed to be deducted for 2020.

This article was originally published in News & Views (Dean Dorton’s quarterly newsletter).

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Article Dean Dorton

Standard deduction
For 2020, the standard deduction is $12,400 for single filers (up from $12,200 in 2019) and $24,800 for married taxpayers filing jointly (up from $24,400 in 2019).

FICA base
Annual compensation to which Social Security tax applies is $137,700 for 2020 (up from $132,900 in 2019).

Social Security benefits
Individuals who are drawing Social Security benefits prior to attaining full retirement age will begin to suffer reductions in payments if they have earned income exceeding $18,240 in 2020 (up from $17,640 in 2019).

Adjustments for retirement accounts
The maximum annual addition to a defined contribution plan is increased to $57,000 for 2020 (up from $56,000 for 2019), and the corresponding maximum amount of compensation that can be considered as the base for retirement plan contributions is $285,000 for 2020 (up from $280,000 for 2019).

While the IRA annual contribution limit remains at $6,000 for 2020, the maximum amounts that individuals can elect to contribute to employer-sponsored plans have increased as shown in the chart below. Catch-up contribution amounts are available to those age 50 or over.

Year IRAs SIMPLE IRA Plans Other Employer Plans
Annual Contribution Catch-Up Contribution Elective Deferral Catch-Up Contribution Elective Deferral Catch-Up Contribution
2019 $6,000 $1,000 $13,000 $3,000 $19,000 $6,000
2020 $6,000 $1,000 $13,500 $3,000 $19,500 $6,500

Kentucky’s pension income exclusion
The amount of retirement income excludable from Kentucky income tax remains $31,110 for 2020.

Health savings accounts
The limits on contribution deductions for 2020 are $3,550 for self-only coverage (up $50 from 2019) and $7,100 for family coverage (up $100 from 2019). The additional “catch-up” contribution allowable for those age 55 or older remains $1,000.

Health flexible spending arrangements
The maximum voluntary employee salary reduction for employer-adopted FSAs (flexible spending arrangements) is $2,750 for 2020 (up $50 from 2019).

Estate tax
Federal estate, gift, and generation-skipping taxes will apply to cumulative subject transfers exceeding $11,580,000 in 2020, up from $11,400,000 in 2019.

Gift taxes
The annual exclusion for gifts per donee remains $15,000 for 2020.

Nanny tax
Cash wages paid for domestic service in the employer’s home of less than $2,200 are not subject to FICA in 2020 (up from $2,100 in 2019).

Article Dean Dorton

By: Erica Horn, CPA, JD | ehorn@deandorton.com

The IRS periodically measures overall compliance of taxpayers with their federal tax obligations. The difference between actual compliance and full compliance is referred to as the “tax gap.” The most recent published information is for tax years 2011-2013. In terms of pure dollars, the level of noncompliance may seem to be staggering; when viewed as a percentage of estimated total tax liabilities, it may not seem so bad.

For 2011-2013, the gross tax gap was estimated to be $441 billion per year. Subsequent to their due dates, additional payments were estimated to be $60 billion. These payments were made either voluntarily or through IRS administrative and enforcement efforts. Thus, the net tax gap was estimated to be $381 billion. Based on estimated 100% compliance, the net compliance rate was 85.8% and the tax gap was 14.2%.

To give the dollar amount of the tax gap some perspective, the average net tax gap for 2011-2013 of $381 billion, if eliminated, would have covered 56% of the federal government’s $680 billion budget deficit for its fiscal year 2013.

The tax gap is composed of three main components and focuses on five types of taxes. The three components are underreporting, underpayment, and non-filing. Underreporting measures taxpayers’ failure to accurately report their full tax liabilities on tax returns; underpayment is the failure to pay all taxes due reflected on filed returns; and non-filing is the failure to file on time or altogether. The five types of taxes measured are individual income tax, corporate income tax, employment taxes (Social Security and federal unemployment insurance), estate tax, and excise tax.

We are inclined to let each reader decide whether to feel better or worse after digesting this information!