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14 Domain AFTR 1 - Federal Tax Updates |
| 2014 Tax benefits increase |
| When new tax rates are announced, annual inflation adjustments are taken into accounts for every tax provision for the new tax year. This includes adjustments to tax rates, tax tables and also the normal cost of living adjustments. For example, the tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return). This is up from $400,000 for single taxpayers and $450,000 for married filing jointly taxpayers. |
| As a result of inflation adjustments, we see changes is the standard deductions for every filing status each year. For instance, the standard deduction rises to $6,200 for single and married persons filing separate returns for tax year 2014. |
| The standard deduction rises to $12,400 for married couples filing jointly for tax year 2014. |
| The standard deduction for heads of household rises to $9,250, up from $9,100. |
| Additionally, the limitation for itemized deductions to be claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more. |
| The limitation for itemized deductions to be claimed on tax year 2015 returns of married filing jointly individuals begins with incomes of $305,050 or more. |
| The new personal exemption amounts rises to $3,950. |
| This exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 for singles. |
| And the exemption amount for married filing jointly is subject to a phase-out at adjusted gross income of $305,050. |
| Furthermore, the Alternative Minimum Tax exemption amount for tax year 2014 is $52,800. |
| The married filing jointly Alternative Minimum Tax exemption amount for tax year 2014 is $82,100 for married couples filing jointly. |
| 2014 Inflation adjustment items |
| All the Earned Income Credit amounts rise also. For 2014, the maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children. |
| Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000. |
| The annual exclusion for gifts remains the same at $14,000 for tax year 2014. |
| The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains the same at $2,500 for tax year 2014. |
| The foreign earned income exclusion rises to $99,200 for tax year 2014. |
| 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. |
| Additional Medicare Tax |
| For tax years beginning after December 31, 2012, a 0.9% Additional Medicare Tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation based on incomes of married filing jointly taxpayers that exceeds $250,000. For tax years beginning after December 31, 2012, a 0.9% Additional Medicare Tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation based on incomes of single taxpayers that exceeds $200,000. For tax years beginning after December 31, 2012, a 0.9% Additional Medicare Tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation based on incomes of married filing separate taxpayers that exceeds $125,000. |
| For tax years beginning after December 31, 2012, a 0.9% Additional Medicare Tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation based on incomes of head of household taxpayers that exceeds $200,000. Medicare wages and self-employment income are combined to determine if income exceeds the Additional Medicare Tax threshold. All Medicare wages, railroad retirement (RRTA) compensation, and self-employment income currently subject to Medicare Tax are subject to Additional Medicare Tax if paid in excess of the applicable threshold for the taxpayer's filing status. |
| There are no special rules for nonresident aliens and U.S. citizens living abroad for purposes of the additional Medicare tax provision. Medicare wages, railroad retirement (RRTA) compensation, and self-employment income earned by such individuals will also be subject to Additional Medicare Tax, if in excess of the applicable threshold for their filing status. An employer is responsible for withholding the Additional Medicare Tax from wages or railroad retirement (RRTA) compensation it pays to an employee in excess of $200,000 in a calendar year regardless of filing status. An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages or railroad retirement (RRTA) compensation in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. To account for their Additional Medicare Tax liability, some taxpayers may need to adjust their withholding or make estimated tax payments. |
| Net Investment Income Tax |
| The 3.8 percent Net Investment Income tax applies to individuals, estates and trusts that have certain investment income above applicable threshold amounts. The Net Investment Income Tax (NIIT) applies in the case of married filing separate individuals, at a rate of 3.8 percent on the lesser of their net investment income or the excess of modified adjusted gross income over $125,000. In the case of married filing jointly individuals, it applies at a rate of 3.8 percent on the lesser of their net investment income or the excess of their modified adjusted gross income over $125,000. In the case of filing single individuals, at a rate of 3.8 percent on the lesser of their net income or the excess of their modified gross income over $200,000. |
| In the case of an estate or trust, the new tax of 3.8 percent applies on the lesser of the undistributed net investment income or the excess of the adjusted gross income over the dollar amount at which the highest tax bracket begins for an estate or trust for the tax year. For estates and trusts, the 2013 net investment income tax threshold is $11,950. |
| In general, investment income, for purpose of the net investment income tax, includes net gains from the disposition of property other than property held in a trade or business in which the NIIT does not apply. The NIIT does not apply to certain types of income that are excluded for regular income tax purposes such as tax-exempt state or municipal bond interest, Veteran Administration benefits or the excluded gain from the sale of a principal residence. In order to avoid certain penalties, taxpayers may need to increase their income tax withholding or estimated taxes to consider any additional tax liability associated with the NIIT. |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Filing Season Program rights reserved. |
| Revised: 12/15/14 |
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