November 25, 2013
2014 Income Tax Bracket Increase Estimates
Alas, inflation is put to good use – taxpayers will be seeing its benefits in the form of tax relief in 2014. The mandatory annual inflation-adjustments as provided under the Tax Code should provide relief.
The American Taxpayer Relief Act of 2012 (ATRA), signed into law on January 2, 2013 will at least guarantee in most cases, a little more money for you. ATRA permanently extended the Bush administration tax cuts and other provisions that previously hinged on congressional action, such as the alternative minimum tax (AMT) exemptions. This eliminates the uncertainty that comes every time tax cuts approach possible elimination and are at the mercy of Congress. ATRA also indexes tax brackets for tax years after 2013.
Indexing brackets during inflation lowers tax bills by including more of people’s incomes in lower brackets. The formula used in indexing showed a slightly lower amount of inflation this year over last, just over 1.5 percent. This amount is slightly below the 2.5 percent amount used last year and far below the 3.8 percent inflation factor used to set 2012 tax amounts. Although some 2014 taxes will stay the same as they were for 2013, such as the $14,000 gift tax annual exclusion and the $5,500 limit on IRA contributions, many will change slightly for inflation in 2014.
Many taxpayers will experience modest tax savings generated by indexing of the 2014 individual income tax rate brackets. Some examples include:
- A married couple filing jointly with a total taxable income of $100,000 should expect to pay $145 less income taxes in 2014 compared to the same income for 2013.
- A single filer with taxable income of $50,000 should pay $72.50 less income taxes in 2014 as compared to the same income for 2013.
When you add to those savings, the additional tax savings realized in most cases by slightly higher 2014 standard deduction and personal exemption amounts, as well as amounts that might be claimed from an increase in the income ceilings imposed on tax benefits, such as education credits, individual retirement account (IRA) contributions, and more. When combined, inflation-based tax savings for the 2014 tax year can become substantial.
Higher-Income, Higher Taxes
The 2013 highest tax brackets – currently at $450,000 or more for married filing joint taxpayers, $425,000 for taxpayers filing as head of household, single filers at $400,000 and married couples filing separately at $225,000 – will likely go up. For 2014 these amounts are projected to rise to $457,600, $432,200, $406,750 and $228,800 respectively.
AMT Exemptions Indexed
It is projected that for 2014 the AMT exemption will be adjusted upward for married joint filers to $82,100, from $80,800 in 2013, single filers & heads of household to $52,800, up from $51,900 in 2013.
Standard Deduction, Personal Exemption Rise
The standard deduction and personal exemption amounts are also subject to indexing. Projections for 2014 indicate that the trend will continue, with increases across the board. The standard deduction is expected to rise in 2014 from $6,100 to $6,200 for single filers, $8,950 to $9,100 for heads of household and $12,200 to $12,400 for married couples filing joint.
Most taxpayers will see a boost in their allowed personal exemption amounts as well even for higher income brackets. The anticipated 2014 phase out range for personal exemptions begins at $305,050 for joint filers and $254,200 for single filers.
The IRS usually releases the official annual inflation adjustments by December each year. The projected amounts above were based on the relevant inflation data released September 17, 2013, by the US Department of Labor and should not be used for income tax returns or other federal income tax related purposes until confirmed by the IRS later this year.