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Inflation adjustments
Friday, October 19, 2012

Yesterday, the IRS announced cost of living adjustments to a host of important figures which I wanted to share with you for tax planning purposes.  The main changes are a $500 increase in allowable contributions to 401(k)/403(b)/457(b) elective plans and SIMPLE plans.

Unfortunately, the social security (FICA) wage base increased by $2,600 from $110,100 to $113,700.  This, combined with the expiration of the 2% employee tax deduction next year, will mean an increase of almost $400 in FICA taxes next year for those who make enough money to be affected by this change.  

The real tax bite, though, will come with the aforementioned expiration of the 2% employee FICA tax reduction.  You should be aware of these coming changes and be prepared to adjust your budgets accordingly.  
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