Many of the numbers coming out of Washington that impact our tax and retirement planning lives are different in 2019, just as they tend to be every year. “Chained” Consumer Price Index (CPI) is now used to adjust most tax-related numbers. 

Chained CPI is generally lower than CPI. For 2019, it is about 2%. While the difference is subtle, use of this factor makes annual tax-related adjustments less favorable for taxpayers. 

Federal Tax Numbers 

Seven tax brackets, ranging from 10% to 37%, were carried over from the 2018 tax year. In 2019, the taxable income range within each of the seven brackets will increase by about 2%. This will result in a modestly-lower tax bill for a given taxable income compared to 2018. 

The standard deduction was increased by $200 for single taxpayers and by $400 for married filing jointly. Additional deductions are still available for those who are blind and/or age 65 and older. 

The federal gift and estate tax exclusion increased 2% from $11.18 million to $11.40 million. The portability provision remains, allowing a married couple to shield $22.8 million from federal estate taxation. The annual gift tax exclusion remains at $15,000. 

Two Tax Provisions Changed 

Provisions ending in 2019 include: 1) the ability to treat alimony payments as a deduction for the payer and as taxable income for the payee for divorces finalized after 2018 and 2) the ability to deduct medical expenses exceeding 7.5% of Adjusted Gross Income (AGI). The medical deduction threshold starting in 2019 is 10% of AGI. 

Retirement Accounts 

Several contribution limits were increased for 2019. The increase is $500 for 401(k)/403(b)/457, Traditional/Roth IRA, and SIMPLE IRA plans. Catch-up contribution limits are unchanged from 2018. 

Social Security and Medicare 

Inflation adjustments for Social Security benefits are based on actual CPI (not chained). The 2018-to-2019 benefits increase is 2.8% - the highest since 2012. The ceiling on wages taxed for Social Security purposes increased 3.5% from $128,400 to $132,900. While this will not make current high-income workers happy, the good news is that it will pump additional funding into the system. 

Medicare premium increases were modest. Combined Part B and Part D monthly premium costs increased by 90 cents to $1.50 in the first five Medicare premium tiers. A 6th higher-premium tier was added for a Modified AGI threshold of $500,000 single and $750,000 married filing jointly. Again, this will not make high-income retirees happy but will help keep the program solvent at least for the near term. Medicare premiums for 2019 are based on 2017 Modified AGIs. 

Don’t confuse these new 2019 numbers when preparing your 2018 taxes. They will come into play in 2020 when you prepare your 2019 income taxes. 

Questions? 

Consult with your tax professional and CNB Wealth Advisor.