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Government Update: 2016_11

Government Update: 2016_11

Changes to Indiana County Income Tax

There will soon be a change to county withholding taxes in the state of Indiana. Effective January 1, 2017, county income tax rates will be identical for residents and nonresidents subject to a local income tax. Under the previous withholding rules, a different rate was imposed on residents of the county and those that lived outside of the particular county.

There are no changes to the rules regarding the determination of which county tax must be withheld from an individual. All county taxes are determined based upon an individual’s resident or workplace county as of January 1st of the taxing year. County withholding guidelines will remain the same as follows:

  1. Residents of an Indiana county on January 1st – Withhold based upon the rate of the county in which the individual resides only. If the individual works in a county outside of the one in which they reside, you will NOT withhold for the work county tax, even if it is higher.
  2. Nonresidents working in an Indiana county on January 1st – Withhold county taxes based upon the rate for the county for which the individual works in.
  3. Individuals moving to or beginning work in Indiana after January 1st – Do not withhold any county taxes for the current tax year. New residents and nonresident workers will begin to have county taxes withheld beginning January 1st of the following year.

For more information, please see Departmental Notice #1 here and Departmental Notice #42 here.

New Jersey Governor Christie Ends the Reciprocal Agreement with Pennsylvania

Governor Chris Christie (R-NJ) has ended a 38-year-old reciprocal agreement with the Commonwealth of Pennsylvania. This change will take place on January 1, 2017. The reciprocal agreement allowed residents of New Jersey and Pennsylvania working in the neighboring state to have taxes withheld and filed in their state of residency only. The change can lead to large withholding changes for these workers. Both states utilize different calculations in the determination of withholding taxes. Pennsylvania uses a flat 3.07% tax rate, while New Jersey utilizes a graduated withholding tax model, ranging from 1.5% to 8.97% of taxable wages. The ending of this agreement could be a financial hit to lower income residents of New Jersey working in Pennsylvania and high income residents of Pennsylvania working in New Jersey. Under the reciprocal agreement, New Jersey residents working in Pennsylvania could have had as low as 1.5% of their taxable wages withheld for New Jersey. Without this agreement, these same individuals will now have the flat-tax rate of 3.07% withheld. Conversely, Pennsylvania residents used to paying the flat 3.07% rate on their earnings could see a large jump in their withholding tax as earnings in excess of $500,000 are taxed at a rate of 8.97%.

Governor Christie has stated that he was forced to end this agreement due to the inability to balance the budget based upon disputes with lawmakers over rising healthcare costs. While he stated that he is open to reversing this decision and coming up with a new agreement with Pennsylvania, it is unlikely that the necessary budget changes will occur to allow the agreement to continue.

For more information, please visit the NJ Spotlight Site and/or the NJ.com Site.

Social Security Wage Base to Increase for 2017

The Social Security Administration has announced a wage base increase for Social Security taxes in 2017. Beginning January 1, 2017, the taxable wage base for Social Security will increase from $118,500 to $127,200. With the rate staying at 6.2%, the maximum amount of tax to be withheld from individuals will increase from $7,347 to $7,886.40. There are no changes for Medicare taxes in 2017.

You can read more about the changes from the Social Security Administration at ssa.gov.

401(k) Contribution Limits Remain Unchanged for 2017

The contribution limit for 401(k), 403(b), and most 457 plans will remain at $18,000 for 2017. The catch-up contribution for participants in these plans aged 50 and over will remain at $6,000 for 2017. The IRS reviews these limitations annually to determine if changes to the maximum contribution amounts are warranted. The IRS also announced that the annual contribution limit to an IRA will also be unchanged from the $5,500 limit and the $1,000 catch-up limit for those participants aged 50 and over.

For additional changes to retirement plans, please read the information at irs.gov.

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