Along with the momentous legislative developments stemming from the economic crisis, a slew of year-beginning and tax-season updates for 2009 have kept our editorial team busy during the past few weeks. These include:
  • the 2009 income limit for Social Security tax ($106,800)
  • raised exemption thresholds for triggering gift tax ($13,000 annually) and federal estate tax ($3.5m)
  • an increase in the foreign earned income exclusion for US citizens working abroad ($91,400, up from $87,600 on 2008 income)
Click here to see a detailed list of the major additions and revisions to our content during the last few months of 2008.

Tax Changes Ahead Under President Obama

In addition to the ongoing 2008 tax rebate (discussed below), President Barack Obama is expected to oversee another stimulus package in the coming weeks. But what about tax changes in the longer term? Mr. Obama has said he wants to make the 2001 and 2003 income tax cuts permanent except for people with annual income over $250,000, who will almost certainly see a tax hike after the economy has improved:

  • The top two rates of individual income tax (now 33% and 35%) are expected to return to the pre-2001 rates of 36% and 39.6%.
  • The top rate of tax on capital gains and dividends (now 15%) is expected to return to 20%, though a lower rate may apply to investments in startup companies.
These tax increases are likely to occur either next year or after the current tax law expires at the end of 2010. To see how the changes may affect your financial planning for stock compensation, read a new article on (How Tax Rate Changes Impact Strategies For Stock Options & Restricted Stock).

Another major area of likely action in 2009 affecting stock compensation is the alternative minimum tax. During his campaign, President Obama said he wants to index the AMT income exemption amounts for inflation, and many members of Congress would like to reform or even repeal the AMT. For all the latest legislative developments relating to AMT, see the relevant FAQ.

2008 Stimulus Rebate Still Available In 2009

The Economic Stimulus Act of 2008 created a tax rebate last year for many people whose 2007 income, as reported on federal tax returns in 2008, qualified for it. However, you may not be aware that the rebate can be based on income from either 2007 or 2008. This has implications now for people with stock compensation:

  • If option exercises or restricted stock vesting in 2007 caused a spike in your income that pushed you out of range for all or part of the rebate, you may still be able to claim it on your tax return for 2008 (filed in 2009) as long as your 2008 income fell back to a level that qualifies.
  • Similarly, if you did not get the rebate for 2007 but lost your job in 2008, causing your 2008 income to fall into the rebate range, you may be eligible.
If it is based on 2008 income, the rebate comes in the form of a tax credit. For details, see the relevant FAQ.

Tax Return Season Is Coming: Prevent Mistakes You Can't Afford

Tax errors can be costly! Don't draw unwanted attention from the IRS. Our Tax Center explains and illustrates the tax rules for sales of company stock, W-2s, withholding, estimated taxes, AMT, and more. Completely updated for 2009, annotated diagrams of Schedule D show you exactly how to report sales of company stock on your IRS Form 1040.