New Estate Tax & Social Security Rules, Limits
Inflation and other factors triggered some tax and benefit changes for 2012 announced recently by the IRS and Social Security Administration.
The exempt amount for estates and gifts increases because of inflation. The estate of anyone dying in 2012 excludes up to $5.12 million from federal estate taxes. The annual gift tax exclusion remains at $13,000 per person.
The annual deferral limit for 401(k) and similar plans increases to $17,000 (from $16,500) for 2012, and the catch-up contribution for those aged 50 and over remains at $5,500.
Personal and dependent exemptions increase by $100 to $3,800 in 2012, and the standard deduction increases to $11,900 for married couples filing a joint return and $5,950 for singles and married individuals filing separately. The tax brackets also will change. For a married couple filing a joint return, for example, the tax bracket shifts from 15% to 25% at taxable income of $70,700.
The IRS also finally issued regulations on the estate tax portability for estates of decedents who were married. The executor of the estate must file a Form 706 estate tax return to elect to make the unused estate tax exemption available to the surviving spouse, even if filing the form is not otherwise required. Also, filing a Form 706 is considered to be an election to make the unused exemption portable unless the executor specifically opts out of the election on the return. Executors and survivors with questions should consult the new regulations or an estate planner for details.
Social Security retirement benefits will increase 3.6% for 2012. The benefits hadn’t increased the previous two years because of low reported inflation. The average benefit will be $1,229 and the maximum will be $2,513. For those ages 62 through 66, they will be able to earn up to $14,640 in 2012 before having SS retirement benefits reduced, and those who turn 66 in 2012 will be able to earn $38,880 without a reduction. For those still working, the Social Security wage base rises to $110,100 in 2012.
