The break points to the income tax brackets, standard deduction amounts, exemption amount, and other tax items are adjusted annually for cost-of-living increases. The adjustments are based on the average Consumer Price Index (CPI) for the 12-month period ending the previous Aug. 31. The Aug. 2013 CPI has been released by the Labor Department. (U.S. Department of Labor, Consumer Price Index (for all-urban consumers), 9/17/2013) Using the CPI for Aug. 2013, released on Sept. 17, 2013 (and the preceding 11 months), RIA has calculated 2014 indexed amounts for several tax items, as set forth below.
RIA observation: IRS is required to officially release the 2014 adjustments by Dec. 15, 2013.
Standard deductions. The basic standard deduction for 2014 will be:
Joint return or $12,400 (up from
surviving spouse $12,200 for 2013)
Single (other than $6,200 (up from
head of household $6,100 for 2013)
or surviving spouse)
Head of household $9,100 (up from
$8,950 for 2013)
Married filing $6,200 (up from
separate returns $6,100 for 2013)
Dependents. For an individual who can be claimed as a dependent on another’s return, the basic standard deduction for 2014 will be $1,000 (same as for 2013), or $350 (same as for 2013) plus the individual’s earned income, whichever is greater. However, the standard deduction may not exceed the regular standard deduction for that individual.
Older and blind taxpayers. For 2014, the additional standard deduction for married taxpayers 65 or over or blind will be $1,200 (same as for 2013). For a single taxpayer or head of household who is 65 or over or blind, the additional standard deduction for 2014 will be $1,550 (up from $1,500 for 2013).
Kiddie tax. The exemption from the kiddie tax for 2014 will be $2,000 (same as for 2013). A parent will be able to elect to include a child’s income on the parent’s return for 2014 if the child’s income is more than $1,000 and less than $10,000 (same as for 2013).
AMT exemption for child subject to kiddie tax. The AMT exemption for 2014 for a child subject to the kiddie tax will be the lesser of (1) $7,250 (up from $7,150 for 2013) plus the child’s earned income, or (2) $52,800 (up from $51,900 for 2013).
Personal exemption. The personal exemption amount for 2014 will be $3,950 (up from $3,900 for 2013).
RIA observation: The minimum gross income thresholds for filing will also increase for 2014 since they are based on the basic standard deduction, the additional standard deduction, and the exemption amounts.
Phase-out of personal exemption. For 2014, the personal exemption will phase out for taxpayers with the following adjusted gross income amounts:
Joint Return or sur- $305,050 (up from
viving spouse $300,000 for 2013)
Head of household $279,650 (up from
$275,000 for 2013)
Single individual $254,200 (up from
(other than surviv- $250,000 for 2013)
ing spouse or head
of household)
Married filing sepa- $152,525 (up from
rately $150,000 for 2013)
Tax rate schedules. The tax rate schedules for 2014 will be as follows:
FOR MARRIED INDIVIDUALS FILING JOINT RETURNS
AND SURVIVING SPOUSES, THE 2014 RATE BRACKETS WILL BE:
If taxable income is: The tax is:
——————– ———–
Not over $18,150 10% of taxable income
Over $18,150 but not $1,815.00 plus 15% of the
over $73,800 excess over $18,150
Over $73,800 but not $10,162.50 plus 25% of the
over $148,850 excess over $73,800
Over $148,850 but not $28,925.00 plus 28% of the
over $226,850 excess over $148,850
Over $226,850 but not $50,765.00 plus 33% of the
over $405,100 excess over $226,850
Over $405,100 but not $109,587.50 plus 35% of the
over $457,600 excess over $405,100
Over $457,600 $127,962.50 plus 39.6% of the
excess over $457,600
FOR SINGLE INDIVIDUALS (OTHER THAN HEADS OF HOUSEHOLDS AND
SURVIVING SPOUSES), THE 2014 RATE BRACKETS WIll BE:
If taxable income is: The tax is:
——————– ———-
Not over $9,075 10% of taxable income
Over $9,075 but not $907.50 plus 15% of the
over $36,900 excess over $9,075
Over $36,900 but not $5,081.25 plus 25% of the
over $89,350 excess over $36,900
Over $89,350 but not $18,193.75 plus 28% of the
over $186,350 excess over $89,350
Over $186,350 but not $45,353.75 plus 33% of the
over $405,100 excess over $186,350
Over $405,100 but not $117,541.25 plus 35% of the
over $406,750 excess over $405,100
Over $406,750 $118,118.75 plus 39.6% of the
excess over $406,750
FOR HEADS OF HOUSEHOLDS, THE 2014 RATE
BRACKETS WILL BE:
If taxable income is: The tax is:
——————– ———–
Not over $12,950 10% of taxable income
Over $12,950 but not $1,295.00 plus 15% of the
over $49,400 excess over $12,950
Over $49,400 but not $6,762.50 plus 25% of the
over $127,550 excess over $49,400
Over $127,550 but not $26,300.00 plus 28% of the
over $206,600 excess over $127,550
Over $206,600 but not $48,434.00 plus 33% of the
over $405,100 excess over $206,600
Over $405,100 but not $113,939.00 plus 35% of the
over $432,200 excess over $405,100
Over $432,200 $123,424.00 plus 39.6% of the
excess over $432,200
FOR MARRIEDS FILING SEPARATE RETURNS, THE 2014 RATE
BRACKETS WILL BE:
If taxable income is: The tax is:
——————– ———–
Not over $9,075 10% of taxable income
Over $9,075 but not $907.50 plus 15% of the
over $36,900 excess over $9,075
Over $36,900 but not $5,081.25 plus 25% of the
over $74,425 excess over $36,900
Over $74,425 but not $14,462.50 plus 28% of the
over $113,425 excess over $74,425
Over $113,425 but not $25,382.50 plus 33% of the
over $202,550 excess over $113,425
Over $202,550 but not $54,793.75 plus 35% of the
over $228,800 excess over $202,550
Over $228,800 $63,981.25 plus 39.6% of the
excess over $228,800
FOR ESTATES AND TRUSTS, THE 2014 RATE
BRACKETS WILL BE:
If taxable income is: The tax is:
——————— ———–
Not over $2,500 15% of taxable income
Over $2,500 but not $375.00 plus 25% of the
over $5,800 excess over $2,500
Over $5,800 but not $1,200.00 plus 28% of the
over $8,900 excess over $5,800
Over $8,900 but not $2,068.00 plus 33% of the
over $12,150 excess over $8,900
Over $12,150 $3,140.50 plus 39.6% of the
excess over $12,150
Reduction of itemized deductions. The allowable amount of itemized deductions will be reduced if adjusted gross income in 2014 is more than:
Married filing jointly $305,050 (up from
and surviving spouses $300,000 for 2013)
Head of household $279,650 (up from
$275,000 for 2013)
Single individuals (other $254,200 (up from
than heads of households $250,000 for 2013)
and surviving spouses)
Married filing sepa- $152,525 (up from
rately $150,000 for 2013)
AMT figures. For 2014, the AMT exemption amounts will be:
… Joint returns or surviving spouses-$82,100 (up from $80,800 for 2013)
… Unmarried individuals (other than surviving spouses)-$52,800 (up from $51,900 for 2013)
… Married individuals filing separate returns-$41,050 (up from $40,400 for 2013)
… Estates and trusts-$23,500 (up from $23,100 for 2013)
For 2014, the excess taxable income above which the 28% tax rate applies will be $91,250 for married persons filing separately (up from $89,750 for 2013), and $182,500 for joint returns, unmarried individuals and estates and trusts (up from $179,500 for 2013).
For 2014, the amounts used under Code Sec. 55(d)(3) to determine the phaseout of the exemption amounts will be:
… Joint returns or surviving spouses-$156,500 (up from $153,900 for 2013)
… Unmarried individuals (other than surviving spouses)-$117,300 (up from $115,400 for 2013)
… Married filing separately and estates and trusts-$78,250 (up from $76,950 for 2013)
Interest exclusion for higher education. The interest on U.S. savings bonds redeemed to pay qualified higher education expenses may be tax-free. The exclusion is phased out at certain income levels, which are adjusted annually for cost-of-living increases. The phaseout for 2014 will begin at modified adjusted gross income (MAGI) above $76,000 ($113,950 on a joint return). For 2013, the corresponding figures are $74,700 and $112,050.
Qualified transportation fringe benefits. For 2014, an employee will be able to exclude up to $250 (increased from $245 for 2013) a month for qualified parking expenses, and up to $130 a month (down from $245 for 2013) of the combined value of transit passes and transportation in a commuter highway vehicle.
Refundable child credit. For 2014, the child credit is refundable to the extent of the greater of:
… 15% of earned income above $3,000 (same as for 2013), or
… for taxpayers with three or more qualifying children, the excess of the taxpayer’s social security taxes for the tax year over his earned income tax credit for the year. (Code Sec. 24(d))
Earned income tax credit. For 2014, the maximum amount of earned income on which the earned income tax credit will be computed is $6,480 for taxpayers with no qualifying children, $9,720 for taxpayers with one qualifying child, and $13,650 for taxpayers with two or more qualifying children. These amounts are up from $6,370, $9,560, and $13,430 for 2013.
For 2014, the phaseout of the allowable earned income tax credit will begin at $13,540 for joint filers with no qualifying children ($8,110 for others with no qualifying children), and at $23,260 for joint filers with one or more qualifying children ($17,830 for others with one or more qualifying children). These amounts are up from $13,310, $7,970, $22,870 and $17,530 for 2013.
RIA observation: Taxpayers must use IRS tables to determine the amount of their earned income tax credit. While these tables are based on the inflation-adjusted figures set out above, because the credit under the tables is the same for everyone within a $50 range, there may be slight differences between the credit under the tables and the credit the taxpayer would determine using those inflation-adjusted figures.
The amount of disqualified income (generally investment income) a taxpayer may have before losing the entire earned income tax credit will be $3,350 for 2014 (up from $3,300 for 2013).
Education credits. For 2014, the Hope Scholarship Credit under Code Sec. 25A(b)(1), as increased under Code Sec. 25A(i) (the American Opportunity Tax Credit), is an amount equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000, but not in excess of $4,000 (same as for 2013). Accordingly, the maximum Hope Scholarship Credit for 2014 is $2,500 (same as for 2013).
For 2014, a taxpayer’s MAGI in excess of $80,000 ($160,000 for a joint return) is used to determine the reduction under Code Sec. 25A(d)(2) in the amount of the Hope Scholarship Credit otherwise allowable under Code Sec. 25A(a)(1) (same as for 2013).
For 2014, a taxpayer’s MAGI in excess of $54,000 ($109,000 for a joint return) is used to determine the reduction under Code Sec. 25A(d)(2) in the amount of the Lifetime Learning Credit otherwise allowable under Code Sec. 25A(a)(2) (up from $53,000 and $107,000 for 2013).
Expensing. The amount that may be expensed under Code Sec. 179 for 2014 will be $25,000 (down from $500,000 for 2013). For 2014, the expensing limit will be reduced when more than $200,000 of expensing-eligible property is placed in service (down from $2,000,000 for 2013).
Adoption credit. For 2014, the credit allowed for an adoption of a child with special needs is $13,190 (up from $12,970 for 2013). The maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,190 (up from $12,970 for 2013).
For 2014, the credit begins to phase out for taxpayers with MAGI in excess of $197,880 (up from $194,580 for 2013). The phaseout is complete if MAGI is $237,880 (up from $234,580 for 2013).
Adoption exclusion. For 2014, the amount that can be excluded from an employee’s gross income for the adoption of a child with special needs is $13,190 (up from $12,970 for 2013). For 2014, the maximum amount that can be excluded from an employee’s gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for other adoptions by the employee is $13,190 (up from $12,970 for 2013).
For 2014, the amount excludable from an employee’s gross income begins to phase out for taxpayers with MAGI in excess of $197,880 (up from $194,580 for 2013). The phaseout will be complete at $40,000 above the threshold.
Student loan interest deduction. For 2014, the deduction phases out ratably for taxpayers other than joint filers with MAGI between $65,000 and $80,000 ($130,000 and $160,000 for joint filers). For 2013, the deduction phases out ratable for taxpayers other than joint filers with MAGI between $60,000 and $75,000 ($125,000 and $155,000 for joint filers).
MAGI limits for making deductible contributions by active plan participants to traditional IRAs. In general, an individual who isn’t an active participant in certain employer-sponsored retirement plans, and whose spouse isn’t an active participant, may make an annual deductible cash contribution to an IRA up to the lesser of: (1) a statutory dollar limit, or (2) 100% of the compensation that’s includible in his gross income for that year. For 2014, the statutory dollar limit is $5,500 (same as for 2013), plus an additional $1,000 for those age 50 or older. If the individual (or his spouse) is an active plan participant, the deduction phases out over a specified dollar range of MAGI.
For taxpayers filing joint returns, the otherwise allowable deductible contribution will be phased out ratably for 2014 for MAGI between $96,000 and $116,000 (up from $95,000 and $115,000 for 2013).
For 2014, for single taxpayers and heads of household, the otherwise allowable deductible contribution will be phased out ratably for MAGI between $60,000 and $70,000 (up from $59,000 and $69,000 for 2013). For married taxpayers filing separate returns, the otherwise allowable deductible contribution will continue to be phased out ratably for MAGI between $0 and $10,000 (same as for 2013).
For a married taxpayer who is not an active plan participant but whose spouse is such a participant, the otherwise allowable deductible contribution will be phased out ratably for 2014 for MAGI between $181,000 and $191,000 (up from between $178,000 and $188,000 for 2013).
MAGI limits for making contributions to Roth IRAs. Individuals may make nondeductible contributions to a Roth IRA, subject to the overall limit on IRA contributions. The maximum annual contribution that can be made to a Roth IRA is phased out for taxpayers with MAGI over certain levels for the tax year. For taxpayers filing joint returns, the otherwise allowable contributions to a Roth IRA will be phased out ratably for 2014 for MAGI between $181,000 and $191,000 (up from between $178,000 and $188,000 for 2013). For single taxpayers and heads of household, it will be phased out ratably for MAGI between $114,000 and $129,000 (up from $112,000 and $127,000 for 2013). For married taxpayers filing separate returns, the otherwise allowable contribution will continue to be phased out ratably for MAGI between $0 and $10,000 (same as for 2013).
Saver’s credit. For tax years beginning in 2014, an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his qualified retirement savings contributions, as follows:
… Joint filers: $0 to $36,000, 50%; $36,000 to $39,000, 20%; and $39,000 to $60,000, 10% (no credit if AGI is above $60,000).
… Heads of households: $0 to $27,000, 50%; $27,000 to $29,250, 20%; and $29,250 to $45,000, 10% (no credit if AGI is above $45,000).
… All other filers: $0 to $18,000, 50%; $18,000 to $19,500, 20%; and $19,500 to $30,000, 10% (no credit if AGI is above $30,000).
By way of comparison, for tax years beginning in 2013, an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his qualified retirement savings contributions, as follows:
… Joint filers: $0 to $35,500, 50%; $35,500 to $38,500, 20%; and $38,500 to $59,000, 10% (no credit if AGI is above $59,000).
… Heads of households: $0 to $26,625, 50%; $26,625 to $28,875, 20%; and $28,875 to $44,250, 10% (no credit if AGI is above $44,250).
… All other filers: $0 to $17,750, 50%; $17,750 to $19,250, 20%; and $19,250 to $29,500, 10% (no credit if AGI is above $29,500).
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