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New Ebook: Cross-Border Implications of Holding a 529 Plan

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Many Canadians move for career opportunities to the U.S., work and raise families, and then plan to relocate back to Canada. A qualified tuition and educational savings plan for children (a 529 plan) is exempt from taxation in the U.S., in most cases even when a child attends a Canadian university. If you are a Canadian who is considering such a plan, and especially for anyone with an investment in a 529 plan who is moving back to Canada, clear expert advice from a cross-border financial specialist is a very prudent step.

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Cross Border Implications of Holding a 529 Plan

Cross-Border Implications of Holding a 529 Plan

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Thousands of Canadians relocate to the U.S. for career opportunities each year. They often envision staying a couple years to garner valuable experience before returning home. However, what was originally meant to be a short sojourn can quickly become a decade or more. Their life may change significantly during that time, perhaps due to a marriage or the birth of children. This article focuses on 529 plans for children and the tax implications of this educational investment vehicle in a move back to Canada.

Plan

Summary and Takeaways

So-called 529 plans are an investment vehicle you can take advantage of in the United States in order to help you save tuition money to fund your child’s future education. A 529 plan may be very beneficial in terms of offering savings growth that can be eligible for some tax deductions or tax-free withdrawals. However, if you move to Canada, that could result in taxation on the earnings in the account. But there are strategies to help avoid tax exposure, if you plan ahead before you move across the border.

Key Takeaways

  • There are two types of 529 plans, those for prepaid tuition plans and those for educational savings plans.
  • The plans are sponsored by states, and while 34 states allow income tax credits or deductions for 529 plans other don’t. Many people don’t legally reside in the same state where their 529 plan is based.
  • 529 plans are deemed taxable brokerage accounts for Canadian income tax purposes.  Investment income earned in the account is taxable annually.
  • To avoid Canadian tax on your 529 you may want to transfer ownership of the 529 account to a trusted U.S. citizen before you move to Canada.

529 Basics
As its name suggests, this plan is derived from Section 529 of the Internal Revenue Code. It states that a qualified tuition plan shall be exempt from taxation. There are two types of 529 plans: prepaid tuition plans and educational savings plans. For more information on the nature of these categories see Cardinal Point’s blog titled: Canada & U.S. Education Savings Options.

529 plans are sponsored by individual states, and it is not uncommon for a resident of one state to utilize another state’s 529 plan. Why? Because not all states allow for an income tax deduction or credit on the 529 contributions (34 states do). As such, the resident of that state may look for a 529 plan in a state where there are better investment options, lower fees, lower minimum contribution amounts, or higher total lifetime account balance thresholds.

529 Mechanics
As of 2022, contributions made to a 529 plan are limited to an annual $16,000 per beneficiary. This amount doubles to $32,000 if the donors are married filing jointly. There is also an option that exists to “front load” the 529 with up to five years’ worth of contributions ($160,000) if married filing jointly. As long as no additional contributions to that beneficiary are made within that five-year window, no gift tax filing obligations are required.

Money contributed does not receive a tax deduction at the federal level. However, if the contributor resides in one of the 34 states that allows for a state income tax deduction or credit, then there is a tax benefit that can potentially be utilized. The earnings on the associated investments within the plan grow tax free as long as future withdrawals are utilized for qualified higher education expenditures.

Expenses that do not qualify for tax-free withdrawal include room and board, transportation, and medical expenses to name a few. If the withdrawal is deemed unqualified, then the earnings on the distribution are subject to income tax and an additional 10% penalty per the “Kiddie Tax” rules (see below).

The Tax Cuts & Jobs Act (TCJA) of 2017 added a feature to qualified 529 withdrawals that allowed $10,000 of annual distributions to be used for K-12 school tuition. The Secure Act of 2020 preserved this condition in the legislation. In addition, the Secure Act revitalized the old “Kiddie Tax” regime.

Kiddie Tax Basics
The tax applies to children under the age of 19 unless they are full-time students. In the latter scenario, these tax rules apply until the young adult turns 24. Under these rules, a portion of a child’s unearned income could be taxed at the parent’s marginal income tax rate. This would include any unqualified distributions from a 529 plan.

When analyzing the federal income tax bill of the child subject to the “Kiddie Tax,” the standard deduction rules apply. For 2020, the child’s standard deduction is the greater of: $1,100 or earned income plus $350, not to exceed $12,950 for 2022. Any annual unearned income between the standard deduction and $2,200 is taxed at the child’s tax rate. Once the annual $2,200 threshold is exceeded, the remaining unearned income is taxed at the parent’s marginal tax rate, which could be as high as 37%.

Cross-Border Implications of 529 Plans
Let’s assume a Canadian family living in Texas had two children during their U.S. tenure.  These children are dual citizens of Canada and the U.S., are currently in high school, and plan to go to a Canadian university for higher education. Now that the entire family has made the decision to return to Canada, how should they deal with the 529 plans they’ve accumulated and what are the tax considerations?

U.S. Taxation – If the Canadian college or university is eligible for Section 529, any qualified distributions are tax free for U.S. tax purposes. Many, but not all, Canadian institutions are eligible, and the list evolves over time. The Federal School Code Lookup Tool gives you an easy way to determine whether your chosen Canadian college or university is eligible for Section 529. The custodian of the 529 reports the distribution on a Form 1099-Q and, assuming the funds were paid to the 529 beneficiary, college/university, or student loan provider, the distribution would be reported on the child’s tax return.

Canadian Taxation – Although 529 plans provide income tax savings for U.S. residents, they are effectively taxable brokerage accounts for Canadian income tax purposes.  As such, any investment income earned in the account would be taxable on an annual basis.  Upon re-establishing Canadian tax residency, there is a step up in the cost basis (converted into CAD) that is applicable to certain assets inclusive of 529 accounts. This is called the “deemed acquisition date” and resets the book value for Canadian tax purposes to the fair market value on the date Canadian residency is established.

There is also an argument that the 529 plan would be a deemed resident trust that would require Canadian trust filings.  In order to avoid Canadian taxation of these accounts in some form or another, you may want to consider transferring ownership of the account to a trusted family member or other individual who resides in the U.S. prior to your move to Canada. That transfer should not trigger any tax.  After transfer of ownership, you could continue to contribute to the fund through gifts, and the account would avoid taxation in Canada. However, some do not feel comfortable transferring ownership of their 529 accounts.

In Conclusion – The future changes constantly, and it’s difficult to know with certainty where you’ll choose to reside or where your child will decide to pursue his or her higher education. If you are confident your child will choose to go to school in the U.S. or enroll in an international institution that is 529 eligible, then a 529 plan is worth exploring. For a more detailed analysis of the options available to meet this goal, it is prudent to have a conversation with a cross border expert. Contact Cardinal Point for more information.

Proactive Tax Planning for the TCJA’s Sunset in 2026

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As the Tax Cuts and Jobs Act (TCJA) of 2017 approaches its sunset at the end of 2025, taxpayers need to prepare for significant changes. Many provisions that have provided substantial tax benefits will expire, potentially increasing tax liabilities for individuals and businesses. Here, we outline the key provisions set to expire and strategies to maximize tax savings before and after the sunset.

tax law changes

Key Provisions Expiring After 2025

Individual Tax Provisions

Tax Rates: The TCJA lowered individual federal tax rates, with the top rate decreasing from 39.6% to 37%. Starting January 1, 2026, the top rate will revert to 39.6%, impacting high-income earners by increasing their tax liability.

Standard Deduction: The standard deduction nearly doubled under the TCJA ($12,000 for single filers, $24,000 for married filing jointly). Post-2025, the deduction will be about half of the current amount, adjusted for inflation, potentially reducing the simplicity and benefits that many taxpayers currently enjoy.

Itemized Deductions:

  1. SALT Deduction: The cap on state and local tax deductions will expire, allowing taxpayers to once again fully deduct these taxes. This could significantly help high-income taxpayers in high-tax states save on their federal tax bills.
  2. Mortgage Interest: The mortgage interest deduction will revert to pre-TCJA levels, applicable to the first $1 million of home mortgage debt and $100,000 of home equity loan debt, restoring a benefit for homeowners with higher mortgage balances.
  3. Miscellaneous Itemized Deductions: Deductions for investment/advisory fees, legal fees, agent fees, and unreimbursed employee expenses will return, exceeding 2% of the taxpayer’s adjusted gross income, offering relief for various personal and business expenses.
  4. Child Tax Credit: This will revert from $2,000 to $1,000 per qualifying child, decreasing the financial support available to families with children.
  5. Personal Exemptions: Suspended by the TCJA, personal exemptions will return at $2,000 per taxpayer and qualified dependents, adjusted for inflation, reintroducing a tax benefit relied on by many middle-income families.
  6. Alternative Minimum Tax (AMT): The TCJA raised exemption amounts and phaseout thresholds, which will revert to pre-TCJA levels, increasing the AMT burden, particularly affecting taxpayers with high deductions or significant income from capital gains.

Business Tax Provisions

  1. Corporate Tax Rate: The flat corporate tax rate of 21% established by the TCJA is permanent and will not expire.
  2. Qualified Business Income (QBI) Deduction: The 20% deduction for pass-through business income will no longer be available after 2025.
  3. Bonus Depreciation: The allowance for 100% bonus depreciation will phase down annually and will be fully phased out by the end of 2026.

Estate and Gift Taxation

The TCJA effectively doubled the estate and gift tax exclusion amounts. In 2024, the exclusion is $13.61 million per person. After 2025, this amount will be cut roughly in half. Estates exceeding the reduced exclusion will be subject to a federal tax rate of up to 40%.

Planning Strategies Before and After TCJA Sunset

Estate and Gift Planning
  1. Utilize Exclusion Amounts: Make substantial gifts before the end of 2025 to utilize the current higher exclusion amounts.
  2. Spousal Lifetime Access Trust (SLAT): Transfer assets into a SLAT to benefit from the current exclusion while retaining indirect access to trust assets.
  3. Grantor Retained Annuity Trust (GRAT): Use a GRAT to transfer assets out of your estate while receiving annuity payments.

Income Tax Planning

  1. Timing of Deductions: If higher tax rates are expected post-2025, defer deductible expenditures to offset higher future income.
  2. Retirement Contributions: Maximize contributions to retirement accounts such as 401(k) plans and IRAs to reduce taxable income.
  3. ROTH Conversions: Consider gradually converting traditional retirement savings to ROTH accounts to effectively manage future tax liabilities.
  4. Capital Gains Tax Planning: Realize capital gains before tax rates increase. Utilize long-term capital gains rates, which are lower than ordinary income tax rates.
  5. Charitable Giving: Make charitable donations of appreciated assets to avoid capital gains taxes and receive tax deductions.
  6. Business Structure Review: Evaluate the benefits of converting pass-through entities to C corporations to take advantage of the flat 21% corporate tax rate.

Miscellaneous Strategies

  1. Education Savings: Contribute to 529 plans for tax-free growth and withdrawals for qualified education expenses.
  2. Health Savings Accounts (HSA): Maximize contributions to HSAs for tax-free withdrawals for qualified medical expenses.
  3. Tax-Loss Harvesting: Offset capital gains with capital losses to reduce overall tax liability, which is particularly beneficial if higher rates are anticipated in the future.

Conclusion

As the sunset of the TCJA approaches, proactive tax planning is essential. Both individuals and businesses should assess their current tax strategies and make necessary adjustments to mitigate potential tax increases. By taking advantage of the current provisions and planning for the changes ahead, taxpayers can optimize their tax positions and minimize liabilities. Consulting with a tax/financial planner is crucial to navigate the complexities and ensure a proactive approach to the upcoming changes.

U.S. Expatriation: Understanding the Rules, Penalties, and Consequences

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Expatriation, the act of renouncing one’s citizenship or giving up long-term residency, has become increasingly common among U.S. citizens and green card holders. However, this process is governed by complex rules and significant tax implications, especially for those classified as “covered expatriates.” Understanding these classifications, rules, penalties, and consequences is crucial for anyone considering expatriation.

cross-border expats

Covered Expatriates

“Covered expatriate” is a term the U.S. applies to individuals who meet at least one of the following criteria:

  • Net Worth Test: A personal net worth of at least $2,000,000 USD (excluding spouse’s net worth)
  • Tax Liability Test: An average net tax liability of at least $201,000 over the past five years (indexed for 2024), which considers joint tax liability for joint returns
  • Certification Test: Failure to certify compliance with U.S. tax obligations for the past five years​​

Special Obligations for Covered Expatriates

Covered expatriates must follow several rules or penalties, including:

  • Form 8854: Filing this form in the year of expatriation is required by law.
  • Deemed Disposition of Assets: All property is considered sold at fair market value (FMV) the day before expatriation, with gains above an exemption threshold subject to tax. For 2024, the exemption threshold is $866,000 USD.
  • Deferred Compensation Plans: Depending on whether they are eligible or non-eligible, deferred compensation plans are subject to various tax implications, including 30% withholding on distributions and potential deemed distributions​​.

Detailed Consequences

Deemed Disposition: All property owned by the expatriate is treated as sold at FMV the day before expatriation. The first $866,000 USD of gains (as of 2024) is exempt, with taxes applied proportionally across all assets. This tax can be deferred with the posting of security, although interest will still be charged​​.

Deferred Compensation Plans

  • Eligible Plans: Subject to 30% withholding tax on distributions, without the benefit of foreign tax credits for reducing withholding
  • Non-Eligible Plans: Deemed to have been received in full at present value on the expatriation date, with immediate taxation and potential foreign tax credits​​

IRAs and Non-Grantor Trusts: IRAs and 529 plans are treated as if their entire value was distributed the day before expatriation, avoiding the 10% early withdrawal penalty. Non-grantor trusts face a 30% withholding on distributions​​.

Gift and Inheritance Taxes: Gifts and inheritances from covered expatriates to U.S. citizens, residents, or U.S. trusts are subject to a 40% tax, akin to an inheritance tax but with no exemptions or credits. This is not reduced by foreign tax credits, making it particularly relevant for Canadian citizens due to the absence of Canadian gift or estate taxes​​.

Conclusion

Expatriation from the U.S. entails significant financial and tax considerations, especially for covered expatriates. The penalties can be severe, including deemed disposition taxes, withholding on deferred compensation, and hefty taxes on gifts and inheritances. Anyone considering expatriation should seek professional advice to navigate these complexities and ensure compliance with U.S. tax obligations.

By understanding the rules, penalties, and consequences, individuals can make informed decisions about expatriation and its impact on their financial future.

Winter 2023/2024 Tax Highlights – USA

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As we prepare to put away the 2023 calendar and hang up the 2024 calendar that our favorite charity sent us, it’s worth noting that there was no 2023 income tax legislation that changed everything like the Tax Cuts and Jobs Act (TCJA) did in late 2017. We need to discuss the Inflation Reduction Act, Secure 2.0 and the Corporate Transparency Act, but first let’s go over what is almost the same as the 2022 tax year.

Same old…

The highest marginal tax rate is still 37%, 2.6% lower than the 39.6% in effect before the TCJA. The Net Investment Income Tax (NIIT) is still 3.8% on investment income after the first $200,000 of Adjusted Gross Income ($250,000 for married filing jointly). The 0.9% additional Medicare tax still applies to wage and net self-employment income in excess of $200,000 ($250,000 for married filing jointly). There has been no change to the preferential tax rates from 0% to 25% for qualified dividend and long-term capital gain income. Estate tax is still 40% of the taxable estate in excess of the lifetime estate tax exemption and that exemption is still huge – for now.

Miscellaneous itemized deductions such as interest and carrying charges subject to the 2% of Adjusted Gross Income (AGI) threshold are still suspended. There is still a $10,000 State and Local Tax (SALT) cap in place for itemized deductions. The expanded Standard Deduction still replaces the old combination of Personal Exemptions and smaller Standard Deductions. Take note that some states allow the 2% miscellaneous itemized deductions that are suspended under the TCJA.

Tax brackets and phase-outs have crept up and will creep up again for 2024. Here is a sample.

37% income tax rate applies to taxable income over:

TY 2023 TY 2024
Married Filing Jointly MFJ $693,750 $731,200
Married Filing Separately MFS $346,875 $356,600
Single S $578,125 $609,350
Head of Household HOH $578,100 $609,350
Estates & Trusts $14,450 $15,200

40% estate tax rate applies to taxable estate over:

TY 2023 TY 2024
Lifetime Gift & Estate $12,920,000 $13,610,000

The TCJA hugely affected the reporting and taxation of foreign business income. This is still the state of affairs and thousands of pages have been written about it. K1 reporting was expanded to include K2 and K3 reporting last year. This has added many pages to the tax returns of companies and individuals who have foreign-sourced income. No relief from this reporting burden is in sight.

Remember that many of the provisions of the TCJA were temporary and will sunset after December 31, 2025.You may want to accelerate income into 2025 for lower marginal tax rates and push out expenses to 2026 to shelter more income from the higher rates expected to return in 2026. The 20% qualified business income deduction (QBID) is also set to expire in 2026.

Perhaps the most significant item associated with the TCJA is the historically high Lifetime Gift and Estate Tax Exemption. The current $12,920,000 is slated to rise for 2024 and 2025, then drop to between $6 and $7 million for deaths in 2026.

If a spouse dies while the exemption is high, it is usually a good move to file an estate tax return to elect portability of the DSUE even if the estate of the deceased is well below the exemption amount.  For example, assume that E and F are married. E passes when her estate is worth $2 million, and the exemption is $13 million. If an estate and gift tax return is filed, E is the Deceased Spouse, and her Unused Exemption (DSUE) is $11 million.  F passes when his estate is worth $10 million, and the exemption is $7 million.  None of F’s estate is taxable because he has a DSUE of $11 million from E to add to his $7 million personal exemption.

The annual exclusion for gifts is $17,000 for 2023 and will rise to $18,000 for 2024.  You may elect to make a larger gift and have it considered to be given ratably over five years.  This is a great way to front-load an education savings plan or help your adult child buy a home. Split gifts, i.e. where a couple makes a joint gift of $34,000 or more, will require filing a gift tax return, as will five-year ratable gifts.

Also U.S. citizen spouses have an unlimited marital exemption for gifting, only gifts of $175,000 per year, ($185,000 for 2024) to non-citizen spouses may be given without eating into your lifetime gift and estate tax exemption.

2023 limits for contributions to Health Savings Accounts (HSAs) are $3,850 for self-only plans and $7,750 for family plans. If you are 55 or over at the end of the year you may make a $1,000 catch-up contribution for a self-only plan or $1,000 per spouse for a family plan if both spouses are at least 55 years old by the end of 2023. Be mindful that contributions to an HSA are only allowed if you are covered by a qualifying high-deductible health insurance plan – at the time of the contribution.

Health Flexible Spending Accounts (FSAs) maximum contributions are $3,050 for 2023 and will be $3,200 for 2024.

Some new…

Inflation Reduction Act

Energy Credits are fully available for 2023 and will continue through December 31, 2033. There was a phase-in of various requirements and limits during 2022. There are credits for commercial clean energy and builders but we will look at the credits for individuals.

For the residential property credits, the qualifying property must be installed – not just paid for – on the U.S. home in the year that the credit is claimed. Here is the IRS landing page for Home Energy Credits. https://www.irs.gov/credits-deductions/home-energy-tax-credits

Qualified solar electric installations, solar water heaters, fuel cell property, small wind energy property, geothermal heat pumps and battery storage technology expenditures all fit into the Residential Clean Energy Credit.  This credit is 30% of the qualified expenditures and has no annual or lifetime maximum credit amount.  The excess credit carries forward.

The Energy Efficient Home Improvement Credit covers windows, doors, building envelope (insulation), central air conditioners, water heaters, furnaces, boilers and heat pumps, biomass stoves and boilers, and home energy audits. Different items in this category have different lifetime credit limits but they are generally 30% of the expenditure. The credit claimable in this category has an annual $1,200 limit with an additional $2,000 annual credit amount for heat pumps, biomass stoves and boilers. There is no lifetime limit for credits in this category, but the credit is non-refundable and does not carry forward. If you have insufficient tax liability to offset with this credit, consider spreading your improvements over several tax years in order to get full credit for your improvements.

There are Clean Vehicle Tax Credits for new and for used clean energy vehicles. Here is the IRS landing page for Clean Vehicle Tax Credits. If you are a U.S. citizen living in Canada, be aware that this credit is for personal vehicles purchased for use mainly in the U.S. Maybe this becomes your snowbird vehicle.

For vehicles placed in service between January 1 and April 17, 2023, the credit is generally a maximum of $7,500 made up of three components. First, we have a base amount of $2,500 for EV, plug-in, hybrid and fuel cell vehicles.  If the vehicle doesn’t have 7 kilowatt hours (KWh) of battery life, $2,500 is the maximum. Then we have $1,251 for the first 7 KWh of battery capacity and $417 per additional KWh over 7 to a maximum of $7,500.

For vehicles placed in service after April 17, 2023, the maximum credit of $7,500 has only two components: critical minerals and battery components.

There is a price test and an income test.  If Modified Adjusted Gross Income (MAGI) is no more than $150,000 for singles ($300,000 married filing jointly) in the year of purchase or the immediately prior credit, you may take the credit.  It is non-refundable.

The possibility of MAGI disallowing the credit for the first purchaser of the vehicle leads us to the credit being available for Used Clean Vehicles.  If the seller can certify that they did not take a credit for their original use purchase, that credit may be available for the next buyer of that vehicle.

SECURE 2.0

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was enacted in December 2019. SECURE 2.0 was passed in December 2022. As you might infer from the name of the legislation, it concerns itself with promoting retirement savings.

Participants in retirement plans such as IRAs and 401(k)s must take an annual Required Minimum Distribution (RMD) once they reach a certain age. The required beginning date for RMDs was April 1 of the year after you turned 72.

  • If you turned 72 in 2022, your first RMD for 2022 was due on April 1, 2023, and your second RMD for 2023 is due by December 31, 2023, and annually thereafter.
  • The certain age is now 73. If you turn 72 in 2023, your first RMD is due April 1, 2025, and your second is due by the end of 2025.
  • On January 1, 2033, the certain age will be 75.

For more on how Required Minimum Distributions are calculated,  check out our blog

Inherited IRAs are generally required to continue annual RMDs if the original holder was already required to do so at the time of their death. The plan also needs to be fully distributed within 10 years (five years if there is no designated beneficiary). Eligible designated beneficiaries (spouse, minor child or a disabled or chronically ill individual) may still stretch the IRA distributions over their lifetimes.

The IRA contribution limit for 2023 is $6,500 ($7,000 for 2024). Individuals 50 years and older may make an additional $1,000 catch-up contribution. There are additional general catch-up contribution limits for individuals aged 60 through 63.

401(k) contribution limits for 2023 are $22,500 plus up to $7,500 in catch up contributions if the employee is at least 50 years of age. The contribution limits rise to $23,000 plus $7,500 for 2024. Consider making your maximum contribution to take advantage of employer matches where available. As a reminder, Cardinal Point Capital Management is now able to manage your 401(k) program.  Speak with your Private Wealth Manager for more information.

There are multiple and complicated changes to the catch-up contribution limits for employees who are participants in a 401(k). If they earn over $145,000 in 2024 their catch-up contributions must be treated as Roth contributions.

After paying for education, do you have leftover funds in your 529 (college savings) account? Beneficiaries of 529 plans are permitted to rollover up to $35,000 over the course of their lifetime from any 529 account in their name to their Roth IRA.  These rollovers are subject to Roth IRA annual contribution limits and the 529 plan must have been open for at least 15 years.

Beneficial Ownership Information

Do you, or did you, have an interest in a Limited Liability Company, small corporation, limited partnership or some similar entity?  If so, the U.S. government now wants to know who the beneficial owners are or were.  It may not matter that you put the entity on the back burner, haven’t thought about it for a long time, or that it may be dormant and unused.  Beneficial Ownership Information (BOI) reporting must still be addressed, starting in January 2024.

Although this is not a tax measure, we believe that you should give the U.S. Corporate Transparency Act and the required Beneficial Ownership Reporting a few minutes attention.  It’s happening and it’s starting in January 2024.  It may not apply to you at this moment, but you do need to be aware of this reporting requirement in case you open a company in the future. Since the purpose of the legislation is to combat money-laundering and funding crimes, penalties for non-compliance are significant.  Reporting is through FinCEN – the Financial Crimes Enforcement Network.  Here is FinCEN’s landing page for Beneficial Ownership Reporting.

There is an article on our blog titled “Will the U.S. Corporate Transparency Act Affect You?”

The only significant changes since this article was posted are that the time to report a new entity has increased from 30 to 90 days before penalties will be imposed and the exceptions for dormant companies have been expanded.

We suggest that you apply for a FinCEN ID early in 2024 as that will protect your personally identifiable information from those who don’t need to know.

Miscellaneous – Good to Know

The drop in the 1099-K reporting threshold from $20,000 to $600 has been delayed another year per Notice 2023-74. The IRS plans to drop the threshold to $5,000 in 2024 as part of a phase-in. In case you are not familiar with 1099-K, this is an information reporting form that reports ‘gross receipts’ to you through credit card, PayPal and similar payment platforms. The presumption is that the gross receipts are income, but they could very well be reimbursement from your friends for concert tickets or reimbursement from your family for that cottage vacation you booked on their behalf.  All of this is a bit problematic since the 1099-K number will have to go on your tax return even if it is backed out with an explanation.

The maximum compensation (wages and net self-employment income) subject to Social Security Tax is $160,200 for 2023.

If you are drawing early Social Security Benefits and are under your full retirement age, you may earn $21,240 from work in 2023 and still collect the benefits without a claw-back.

Kiddie Tax applies to children under age 19 or under age 24 if a full-time student with unearned passive income and whose gross income is less than $12,500.  In the situation where the child does not have any earned income, the first $1,250 of investment income is not subject to tax. The next $1,250 is taxed at the child’s marginal tax rate and the remainder is taxed at the parent’s marginal tax rate.  For 2024, $1,250 becomes $1,300 in both instances.

Here is some random minutia for trivia night. There is a U.S. federal tax on the first sale by a manufacturer, producer or importer of Arrow Shafts. It will rise from $0.59 to $0.62 per shaft in 2024.