2014 Tax Law Update
As we begin 2014, it is a good time to review tax and law changes and how they may impact planning for the upcoming year.
Social Security Increases
In 2014, monthly Social Security and Supplemental Security Income benefits will increase by 1.5%, representing an automatic cost of living adjustment ("COLA"). Social Security COLA increases, which affect nearly 63 million Americans, are linked to increases in Consumer Price Index for Urban Wage Earners and Clerical Workers ("CPI-W"). Social Security recipients should have received their Social Security Award Letter advising them of the increased amount of their monthly benefits. It is important to save those Award Letters, as they are a necessary document in any application for Medicaid benefits.
Increases in Social Security Tax
For 2014, the maximum amount of earnings subject to the Social Security tax is set for $117,000, an increase from the 2013 taxable maximum earnings amount of $113,700. This figure, also known as the Social Security tax "wage base," is calculated based on the national average wage index.
Annual Gift Tax Exclusion
The annual gift tax exclusion amount remains at $14,000 per person for 2014. Many people still think the annual tax-free amount is $10,000, which it was from 1982 to 2001. However, in 1997, Congress voted to allow adjustments for inflation in $1,000 increments, which began in 1999. As a result, the annual gift tax exclusion amount has slowly risen over the last decade and is now $14,000 per person/per beneficiary for 2014. Remember, however, that the annual gift tax exclusion amount is a tax concept followed by the IRS. For Medicaid purposes, a gift of any amount can negatively affect your eligibility for Medicaid benefits.
Federal Estate Tax Exemption
The federal estate tax exemption amount was temporarily raised to $5,000,000 for 2011, but was scheduled to decrease to $1,000,000 in 2013. However, on January 2, 2013, the $5,000,000 estate tax exemption amount was made permanent, subject to annual adjustments for inflation. For 2014, the exemption amount will increase to $5,340,000 per person. In addition, "portability" was extended indefinitely, which allows a surviving spouse to take advantage of a predeceased spouse's unused estate tax exemption, which can lead to significant estate tax savings.
New York State Estate Tax Exemption
The New York State estate tax exemption amount for 2014 remains at $1,000,000, which it has been since 2001. However, this amount may change in the future, especially in light of a recent report issued by the New York State Tax Relief Commission, which recommends a $5,250,000 exemption, indexed for inflation.
Congress passed the Veterans Compensation Cost-of-Living Adjustment Act of 2013, which provides a COLA increase for Veterans benefits. The adjustment percentage is the same as it is for Social Security Benefits, 1.5% for 2014. Thus the maximum Aid and Attendance benefits for 2014 are as follows: Single Veteran: $1,759; Married Veteran: $2,085; Surviving Spouse of a Veteran: $1,130. Notably, the American Heroes COLA Act, also introduced in 2013, is still pending in Congress. If enacted, the Act will make COLA increases for Veterans benefits automatic, avoiding the need for Congress to pass a law approving such increases each year.
New York State Medicaid
Resource and Income Allowances
The maximum amount of countable resources that an individual in New York State who is aged 65 or older, disabled or blind can have and be eligible for Medicaid is $14,550 in 2014. The income allowance for an individual applicant/recipient of Medicaid home care is $809 per month. The income allowance for a community spouse when a spouse resides in a nursing home and is on Medicaid is $2,931 per month and their maximum resource allowance is $117,240.
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