Tax Updates
Income Tax Brackets and Rates
In 2014, the income limits for all brackets and all filers will be adjusted for inflation and will be as follows (Table 1). The top marginal income tax rate of 39.6 percent will hit taxpayers with an adjusted gross income of $406,751 and higher for single filers and $457,601 and higher for married filers.
| Table 1. 2014 Taxable Income Brackets and Rates | |||
| Rate | Single Filers | Married Joint Filers | Head of Household Filers |
| 10% | $0 to $9,075 | $0 to $18,150 | $0 to $12,950 |
| 15% | $9,076 to $36,900 | $18,151 to$73,800 | $12,951 to $49,400 |
| 25% | $36,901 to $89,350 | $73,801 to $148,850 | $49,401 to $127,550 |
| 28% | $89,351 to $186,350 | $148,851 to $226,850 | $127,551 to $206,600 |
| 33% | $186,351 to $405,100 | $226,851 to $405,100 | $206,601 to $405,100 |
| 35% | $405,101 to 406,750 | $405,101 to 457,600 | $405,101 to $432,200 |
| 39.6% | $406,751+ | $457,601+ | $432,201+ |
Standard Deduction and Personal Exemption
The standard deduction will increase by $100 from $6,100 to $6,200 for singles (Table 2). For married couples filing jointly, it will increase by $200 from $12,200 to $12,400.
Next year’s personal exemption will increase by $50 to $3,950.
| Table 2. 2014 Standard Deduction and Personal Exemption | |
| Filing Status | Deduction Amount |
| Single | $6,200.00 |
| Married Filing Jointly | $12,400.00 |
| Head of Household | $9,100.00 |
| Personal Exemption | $3,950.00 |
PEP and Pease
PEP (personal exemption phase-out) and Pease are two provisions in the tax code that increase taxable income for high-income earners. PEP is the phase out of the personal exemption and Pease (named after former Senator Donald Pease) reduces the value of most itemized deductions once a taxpayer’s adjusted gross income reaches a certain point.
The income threshold for both PEP and Pease will be $254,200 for single filers and $305,050 for married filers (Tables 3 & 4). PEP will end at $376,700 for singles and $427,550 for couples filing jointly, meaning these taxpayers will no longer have a personal exemption.
| Table 3. 2014 Pease Limitations on Itemized Deductions | |
| Filing Status | Income Threshold |
| Single | $254,200.00 |
| Married Filing Jointly | $305,050.00 |
| Head of Household | $279,650.00 |
| Table 4. Personal Exemption Phase-out | ||
| Filing Status | Phase out Begin | Phase out Complete |
| Single | $254,200.00 | $376,700.00 |
| Married Filing Jointly | $305,050.00 | $427,550.00 |
| Head of Household | $279,650.00 | $402,150.00 |
Alternative Minimum Tax
Since its creation in the 1960s, the Alternative Minimum Tax (AMT) has not been adjusted for inflation. Thus, Congress was forced to “patch” the AMT by raising the exemption amount to prevent middle class taxpayers from being hit by the tax as a result of inflation.
On January 2, 2013 the American Taxpayer Relief Act of 2012 finally indexed the income thresholds to inflation, preventing the necessity for an annual patch.
The AMT exemption amount for 2014 is $52,800 for singles and $82,100 for married couple filing jointly (Table 5).
|
Table 5. 2014 Alternative Minimum Tax |
|
| Filing Status | Exemption Amount |
| Single | $52,800.00 |
| Married Filing Jointly | $82,100.00 |
| Married Filing Separately | $41,050.00 |
EITC Income Limits, Maximum Credit Amounts and Tax Law Updates
2014 Tax Year
Earned Income and adjusted gross income (AGI) must each be less than:
- $46,997 ($52,427 married filing jointly) with three or more qualifying children
- $43,756 ($49,186 married filing jointly) with two qualifying children
- $38,511 ($43,941 married filing jointly) with one qualifying child
- $14,590 ($20,020 married filing jointly) with no qualifying children
Tax Year 2014 Maximum Credit:
- $6,143 with three or more qualifying children
- $5,460 with two qualifying children
- $3,305 with one qualifying child
- $496 with no qualifying children
Investment income must be $3,350 or less for the year.
The American Tax Relief Act of 2012
The American Tax Relief act extended the relief for married taxpayers, the expanded credit for taxpayers with three or more qualifying children and other provisions to December 31, 2017.
Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes
The U.S. Department of the Treasury and the Internal Revenue Service recently ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. Under the ruling, same-sex couples will be treated as married for all federal tax purposes where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.
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