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Dependent and/or Child Daycare Expenses Just a reminder. Although the daycare expense limit associated with a cafeteria plan is not indexed, the credit available through a participant's tax filing was raised in 2003. The daycare expenses credit must be filed on Form 2441, which should be attached to the 1040 tax filing form. The cafeteria plan daycare contribution limit remains at $5,000 for a married couple filing a joint return, or for a single parent filing as "Head of Household." For a married couple filing separate returns, the limit is $2,500 each. The limits for the daycare expenses credit are $3,000 of expenses covering one child and $6,000 for families with two or more children. If one of the parents is going to school full time or is incapable of self-care, the non-working spouse would be "deemed" as earning $250 per month for one qualifying child and $500 for two or more qualifying children. This "deemed" earned income is to be used whether a person is using the employer’s cafeteria plan or taking the daycare credit. The daycare credit is reduced, dollar for dollar, by contributions to or benefits received from an employer’s cafeteria plan. A participant may participate in their employer’s cafeteria plan and also take a portion of the daycare expenses through the credit if they have sufficient expenses in excess of their cafeteria plan annual election, but within the tax credit limits. Earned Income Tax Credit By participating in a cafeteria plan, the participant will be lowering their income for the Earned Income Tax Credit (EITC). Check out IRS Publication 596 "Earned Income Credit" for more information about this tax credit. Social Security and Medicare Wage Base For 2009, the Social Security wage base will rise to $106,800 from $102,000 in 2008. The tax rate for employee withholdings remains at 7.65%. The Social Security rate of 6.2% is applied to wages up to the maximum taxable amount for the year; the Medicare portion of 1.45% is applied to all wages. Indexed Compensation Levels The indexed compensation levels for determining who is highly compensated or a key employee are as follows.
The maximum for elective deferrals will increase from $15,000 in 2008 to $16,500 in 2009.. And for those 50 or older, the catch-up contribution rate will increase from $5,000 in 2008 to $5,500 in 2009. The mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes have changed for the 2009 calendar year. Beginning January 1, 2009, the standard mileage rates for the use of a car (including vans, pickups, or panel trucks) will be:
The new rates for business, medical, and moving are lower than the rates for the second half of 2008. A spike in gasoline prices produced a mileage rate adjustment in the second half of 2008 The new rate for business miles compares to a rate of 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half of 2008 and 27 cents in the second half. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study.
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