CARL WATTS & ASSOCIATES

December 02, 2013

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Every year, the IRS announces annual inflation adjustments for the following year, and this year the new figures were revealed in late October.

These new figures are important for your tax planning and tax return for the year 2014. You can find the detailed annual adjustments for 2014 in the IRS Revenue Procedure 2013-35.

Here is a quick review of the new figures for tax items that are of interest to most taxpayers.


2014 Tax Brackets

The tax rate of 39.6% will affect singles whose income exceeds $406,750, and married taxpayers filing jointly with an income in excess of $457,600 (up from $400,000 and $450,000, respectively).


This means that a single taxpayer with an income over $406,750 will pay taxes in the amount of $118,118.75 plus 39.6% of the excess over $406,750.



Personal Exemption


The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)


Standard Deduction

The standard deduction for 2014 rises to $6,200 for singles and married persons filing separate returns (up from $6,100); $12,400 for married couples filing jointly (up from $12,200), and $9,100 for heads of household (which is $8,950 for 2013).


Limitation for Itemized Deduction

If you claim itemized deductions on Schedule A, you should know that the limitation for itemized deductions for tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).

AMT Exemption

The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).


Health FSA Contribution Limit

The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements remains unchanged at $2,500. You can find details on the Health FSA new regulations for 2014 in our previous newsletter.


Earned Income Credit

The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.


Foreign Earned Income Exclusion

The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.


Estates Tax Exclusion

Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
New Figures for 2014
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The annual exclusion for gifts remains at $14,000 for 2014.


Small Employee Health Insurance Credit

The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.


2014 Pension Plan Limitations

Some pension limitations such as those governing 401(k) plans and IRAs will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment.  However, other pension plan limitations will increase for 2014.  Highlights include the following:


  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500.

  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500.


  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. 

  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000, up from $59,000 and $69,000 in 2013.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $96,000 to $116,000, up from $95,000 to $115,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $181,000 and $191,000, up from $178,000 and $188,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013.  For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000. 

  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500.

More details on both the unchanged and adjusted limitations for pension plans in 2014 are to be found on the IRS website.

As always, you can count on us to keep you updated with the latest tax information that may be of interest to you. So, please check our Newsletters regularly.