Getting ready for the upcoming tax season can mean a lot of things for tax preparers and tax business owners. One thing that should be a priority for both is knowing what will change in the 2014 tax code. Tax laws change every year and this upcoming year is certainly no exception. As a tax professional, knowing the changes is crucial. While you won’t be using these changes to prepare 2013 taxes, you should be ready to communicate them with your clients so that they are prepared.
Annual Inflation Adjustments
For the 2014 year, the IRS announced new tax brackets that will impact tax rates across the board. For married taxpayers filing jointly, the taxable income levels are higher (for example the lowest bracket was raised from $0-$17,850 to $0-$18,150 and the highest bracket starts at $457,600 instead of $450,001). For taxpayers filing as head of household, the bracket starts higher than last year ($12,950 is the lowest compared to $12,750). For married filing separately, the bracket for taxable income levels are higher (the lowest bracket was raised from $0-$8,925 to $0-$9,075). Below is the new bracket for single taxpayers.
Single Tax Payers:
| If Taxable Income is: | The Tax is: |
| Not over $18,150 | 10% of the taxable income |
| Over $18,150 but
not over $73,800
|
$1,815 plus 15% of
the excess over $18,150
|
| Over $73,800 but not over $148,850 | $10,162.50 plus 25% of the
excess over $73,800
|
| Over $148,850 but
not over $226,850
|
$28,925 plus 28% of
the excess over $148,850
|
| Over $226,850 but
not over $405,100
|
$50,765 plus 33% of
the excess over $226,850
|
| Over $405,100 but
not over $457,600
|
$109,587.50 plus 35% of
the excess over $405,100
|
| Over $457,600 | $127,962.50 plus 39.6% of
the excess over $457,600
|
View the official IRS 2014 Tax Rates release here.
Standard Deductions
The standard deductions were raised across the board.
- For Single taxpayers: $6,200
- For Head of Household: $9,100
- For Married Filing Jointly: $12,400
- For Married Filing Separately: $6,200
Exemptions
Personal Exemptions: $3,900
The Pease limitation for itemized deductions and personal exemptions remains in effect for tax year 2014. This phase-out of itemized deductions and personal exemptions amounts begins when the taxpayer’s adjusted gross income (AGI) exceeds:
- $254,250 for Single taxpayers
- $279,650 for Head of Household
- $305,050 for Married Filing Jointly and
- $152,525 for Married Filing Separate
AMT Exemption: $52,800 for individuals and $82,100 for married couples filing jointly
FICA and Medicare Taxes
The Federal Insurance Contribution Act (FICA) tax rates have increased.
They are: 2.35% for single taxpayers who earn more than $200,000 and joint filers who earn more than $250,000 a year. For the self-employed, the rate is 15.3%. This means that individuals who earn over $200,000 will have to pay an additional .9% Medicare payroll tax on all income over $200,000. For couples that number is $250,000.
The Affordable Care Act
Provisions in the ACA contribute to some of the biggest changes in the tax law for 2014. We covered many of these in our blog post on the ACA, which you can read here. In summary, employers with more than 50 employees will be required to offer coverage to their employees starting in 2014 and the uninsured will have to begin the process of purchasing coverage. Depending on defined income requirements, some individuals may qualify for exemptions or subsidies. The ACA also caps pre-tax health flexible-spending accounts at $2,500 per person.
There are also changes to the Earned Income Credit, Child Tax Credit, Kiddie Tax, Adoption Credit, Hope Scholarship Credit, IRA contributions, Federal Estate Tax Exemption, and Federal Gift Tax Exclusion. The IRS has a great breakdown of many of the changes for 2014 here.
The best way to get all of these changes under your belt is with an annual tax law class! Check out our CE Courses here.