New Year Brings Tax Changes

January 21, 2009
Special Feature

Every year, as the calendar turns from December to January, some income tax rules change, and 2009 is no exception. In addition to the run-of-the-mill changes, like adjustments to the tax brackets, there are some one-time updates. Also, major efforts to cut taxes are likely to come out of Washington once the new administration takes over.

Every year, as the calendar turns from December to January, some income tax rules change, and 2009 is no exception. In addition to the run-of-the-mill changes, like adjustments to the tax brackets, there are some one-time updates. Also, major efforts to cut taxes are likely to come out of Washington once the new administration takes over.

The income tax brackets are updated annually to account for inflation. In 2009, for example, the upper limit on the 25% tax bracket will be $137,050 in taxable income, up from $131,050 last year. Similarly, to get into the 33% bracket this year, your taxable income will have to top $208,850, compared to $200,050 in 2008. Other increases include a boost in the annual gift-tax exemption, from $12,000 to $13,000, and an increase in the maximum amount you can put into your 401(k) plan, from $15,500 to $16,500. If you’re over age 50, you’re allowed to put in an additional “catch-up” contribution of $5,500 into the retirement plan this year. Another one-time change in retirement plan rules will allow those over 70½ to skip taking minimum distributions from IRAs and other retirement plans in 2009.

One less-welcome increase is a jump in the maximum earnings subject to Social Security taxes, from $102,000 to $106,800, which means that those with incomes above the maximum will pay an additional $297.50. For those who are self-employed, a category that includes many doctors, the added tax will be double that amount, since they pay both the employer and employee portions of the Social Security levy.