CCH Projects Inflation Adjusted Tax Brackets and Other Amounts for 2014

As a service to our subscribers, CCH Tax & Accounting has prepared projected inflation-adjusted tax bracket numbers for the 2014 Tax Rate Schedules, the standard deduction, personal exemption and other tax amounts for use in year-end and 2014 tax planning. The projected figures are based on the inflation-adjustment provisions of the Internal Revenue Code (IRC) as currently in force. Those adjustments use the average inflation index for the 12-month period ending on August 31, 2013, published in the Consumer Price Index for All Urban Consumers (CPI-U) by the U.S. Department of Labor. The rate of inflation as measured for tax purposes represented an approximate 1.5-percent increase over the course of 2013, based on CPI-U indexes released for that 12-month period. The Department of Labor released the index for August 2013 on September 17, 2013.

Notably, 2014 marks the first year that the threshold amounts for the new 39.6-percent tax bracket enacted by the American Taxpayer Relief Act of 2012 (ATRA) (P.L. 112-240 ) will be adjusted for inflation. ATRA introduced certainty into many important tax provisions, such as the tax brackets, estate tax and alternative minimum tax (AMT). The exemptions from and certain other figures related to the AMT will be adjusted for inflation.

Tax Brackets

For 2014, for married taxpayers filing jointly and surviving spouses, the maximum taxable income for the 10-percent bracket is $18,150 (up from $17,850 in 2013); for the 15-percent tax bracket, $73,800 (up from $72,500 in 2013); for the 25-percent tax bracket, $148,850 (up from $146,400 in 2013); for the 28-percent tax bracket, $226,850 (up from $223,050 in 2013); for the 33-percent tax bracket, $405,100 (up from $398,350 in 2013); and for the 35-percent tax bracket, $457,600 (up from $450,000 in 2013). Above the 35-percent threshold, taxpayers will fall within the top 39.6-percent tax bracket.

For heads of household, the maximum taxable income for the 10-percent bracket is $12,950 (up from $12,750 in 2013); for the 15-percent tax bracket, $49,400 (up from $48,600 in 2013); for the 25-percent tax bracket, $127,550 (up from $125,450 in 2013); for the 28-percent tax bracket, $206,600 (up from $203,150 in 2013); for the 33-percent tax bracket, $405,100 (up from $398,350 in 2013); and for the 35-percent tax bracket, $432,200 (up from $425,000 in 2013). Above the 35-percent threshold, taxpayers will fall within the top 39.6-percent tax bracket.

For unmarried, single filers who are not heads of household or surviving spouses, the maximum taxable income for the 10-percent bracket is $9,075 (up from $8,925 in 2013); for the 15-percent tax bracket, $36,900 (up from $36,250 in 2013); for the 25-percent tax bracket, $89,350 (up from $87,850 in 2013); for the 28-percent tax bracket, $186,350 (up from $183,250 in 2013); for the 33-percent tax bracket, $405,100 (up from $398,350 in 2013); and for the 35-percent tax bracket, $406,750 (up from $400,000 in 2013). Above the 35-percent threshold, taxpayers will fall within the top 39.6-percent tax bracket.

For married taxpayers filing separately, the maximum taxable income for the 10-percent bracket is $9,075 (up from $8,925 in 2013); for the 15-percent tax bracket, $36,900 (up from $36,250 in 2013); for the 25-percent tax bracket, $74,425 (up from $73,200 in 2013); for the 28-percent tax bracket, $113,425 (up from $111,525 in 2013); for the 33-percent tax bracket, $202,550 (up from $199,175 in 2013); and for the 35-percent tax bracket, $228,800 (up from $225,000 in 2013). Above the 35-percent threshold, taxpayers will fall within the top 39.6-percent tax bracket.

Standard Deduction

The 2014 standard deduction will rise by $100 for single taxpayers to $6,200, from $6,100 in 2013. For married joint filers, the standard deduction will rise to $12,400, up from $12,200 in 2013. For heads of household, the standard deduction will be $9,100, up from $8,950 in 2013.

The additional standard deduction for the blind and aged will remain the same ($1,200) for married taxpayers. For unmarried taxpayers, the amount of the additional standard deduction will rise to $1,550, up from $1,500 in 2013.

Limitation on Itemized Deductions

For higher income taxpayers who itemize their deductions, the limitation on itemized deductions will be imposed at income above levels:

  • For married couples filing joint returns or surviving spouses, the income threshold will be $305,050, up from $300,000 in 2013.
  • For heads of household, the threshold will be $279,650 in 2014, up from $275,000 in 2013.
  • For single taxpayers, the threshold will be $254,200, up from $250,000 in 2013.
  • For married taxpayers filing separate returns, the 2014 threshold will be $152,525, up from $150,000 in 2013.

Personal Exemptions

The 2014 personal exemption will increase by $50, to $3,950, up from $3,900 in 2013. The phase out of the personal exemption for higher income taxpayers will begin after taxpayers pass the same income thresholds set forth for the limitation on itemized deductions.

Estate and Gift Tax

The gift tax annual exemption will remain the same for 2014, at $14,000. However, the estate and gift tax applicable exclusion will increase from $5,250,000 in 2013 to $5,340,000 in 2014.

AMT Exemptions

ATRA provided for the annual inflation adjustment of the exemption from AMT income. Previously, this inflation adjustment had to be enacted by Congress each year. CCH projects that, for 2014, the AMT exemption for married joint filers and surviving spouses will be $82,100 (up from $80,800 in 2013). For heads of household and unmarried single filers, the exemption will be $52,800 (up from $51,900 in 2013).

Other Amounts

Roth IRA Contributions. Contributions to a Roth Individual Retirement Account (IRA) are limited for taxpayers with adjusted gross income above certain limits adjusted annually for inflation. For 2014, these limits are $181,000 for married joint filers and $114,000 for single filers, up from $178,000 and $112,000, respectively in 2013.

IRA Contributions. The maximum amount of contributions that can be made to an IRA will remain $5,500 for 2014, the same as in 2013.

Education Savings Bond Interest Exclusion. When U.S. savings bonds are redeemed to pay expenses for higher education, the interest may be excluded from income if the taxpayer’s income is below a certain range. For 2014, the phase-out range for single filers will be from $76,000 to $91,000. For joint filers the 2014 phase-out range will be $113,950 to $143,950. This represents an increase from the 2013 ranges of $74,700 to $89,700 (single filers) and $112,050 to $142,050 (married joint filers).

Phase-out of Student Loan Interest Deduction. For 2014, the student loan interest deduction will begin to phase out for married joint filers with modified adjusted gross income (MAGI) over $130,000, up $5,000 from the $125,000 threshold in 2013. For single taxpayers, the deduction will begin to phase out at a MAGI level of over $65,000, up from $60,000 in 2013. The deduction will be completely phased out for married couples with MAGI above $160,000 ($80,000 for single filers).

Limitation on Flexible Spending Arrangements (FSAs). The limitation on the amount of salary reductions an employee may elect to contribute to a cafeteria plan under an FSA remains $2,500, the same as in 2013.

Gifts to Noncitizen Spouses. The first $145,000 of gifts made in 2014 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $2,000 from $143,000 in 2013.

Foreign Gifts. A U.S. person receiving aggregate foreign gifts exceeding $15,358 in 2014 will be required to file an information return.

Foreign Earned Income/Housing. The amount of the 2014 foreign earned income exclusion under Code Sec. 911 for 2014 will be $99,200, up from $97,600 in 2013. The maximum foreign earned income housing deduction for 2014 will be $29,760.

By George Jones and Jennifer J. Rodibaugh, CCH News Staff

 

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