New rates for tax planning in 2019

The first part of this column outlined some of the new tax rates released by the IRS and Social Security Administration. Below are more of the rates you can use in your tax-minimization planning.

Education: The American Opportunity Tax Credit is equal to 100 percent of the amount of qualified tuition and related expenses not in excess of $2,000, plus 25 percent of those expenses that exceed $2,000 but do not exceed $4,000. The maximum credit remains at $2,500. This credit begins to phase out for single individuals whose modified adjusted gross income exceeds $80,000 and at $160,000 for married couples filing jointly.

For 2019, the Lifetime Learning Credit phases out for single individuals whose MAGI exceeds $58,000 and at $116,000 for married couples filing jointly.

Editor’s note: This is the second of a two-part column. See part 1 here.

The $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for single individuals with MAGI in excess of $70,000 and for married couples filing jointly with MAGI in excess of $140,000. The deduction is completely phased out at 2019 MAGI of $85,000 for single individuals and $170,000 for married couples filing jointly.

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Defined contribution plans: The limits on elective deferrals to 401(k), 403(b), certain 457 plans and the federal government’s Thrift Savings Plan increases to $19,000 in 2019. The limit on annual additions to defined contribution plans increases to $56,000.

Defined benefit plans and ESOPs: The maximum amount a defined benefit plan may pay a participant each year increases to $225,000. The amount for determining the maximum employee stock option plan account subject to a five-year distribution period increases to $1,130,000. The dollar amount used to determine the lengthening period of the five-year distribution increases to $225,000.

Compensation-related limits/definitions: The annual compensation limit relating to the maximum compensation counted for an eligible employee in a qualifying plan increases to $280,000. The limitation used in the definition of a highly compensated employee increases to $125,000. The dollar limitation concerning the definition of key employee in a top-heavy plan increases to $180,000. The compensation amount relevant to the definition of control employee for fringe benefit valuation purposes remains unchanged at $110,000 for officers but increases to $225,000 for other employees.

Individual retirement accounts: Eligible taxpayers can contribute up to $6,000 to an IRA in 2019. For taxpayers who are active participants in an employer-sponsored retirement plan, the deduction for making contributions to a traditional IRA is phased out for single taxpayers who have MAGI between $64,000 and $74,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $103,000 to $123,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is not an active participant in an employer-sponsored retirement plan but the other spouse is, the deduction is phased out if the couple’s 2019 income is between $193,000 and $203,000.

The MAGI phase-out range for taxpayers making contributions to a Roth IRA in 2019 is $122,000 to $137,000 for single taxpayers and $193,000 to $203,000 for married couples filing jointly.

Catch-up contributions: The elective deferral limit for a SIMPLE plan increases to $13,000 in 2019. The $3,000 catch-up amount for SIMPLE plans remains unchanged.

Social Security wage base increases for 2019: The maximum amount of earnings subject to Social Security increases to $132,900. The Social Security Administration reported Social Security and Supplemental Security Income benefits will increase by 2.8 percent.

Joanna Powell is a managing director in the New England office of CBIZ & MHM, an accounting and tax provider with offices nationwide, including Providence and Boston.