Every year, the IRS adjusts various dollar limits for inflation. Because inflation has been low for the past several years, these adjustments have been small. Here are some of the adjustments for 2014. These are the numbers taxpayers will use will use when they prepare their 2014 tax returns. For more information, see the IRS release that details the 2014 inflation adjustments.
Tax Brackets. The top tax rate of 39.6% will apply to single taxpayers whose income exceeds $406,750 in 2014 (or $457,600 for married couples filing a joint return). This is up from $400,000 for single taxpayers and $450,000 for married couples filing jointly in 2013. The other marginal tax rates (10%, 15%, 25%, 28%, 33%, and 35%) have similar adjustments to their respective income brackets.
Standard Deduction. The standard deduction goes up to $6,200 for single taxpayers and $12,400 for married couples filing jointly (up from $6,100 and $12,200, respectively, for tax year 2013). The standard deduction for heads of household is $9,100 for 2014, up from $8,950 in 2013.
Itemized Deductions. The minimum income threshold to claim itemized deductions in 2014 (also known as the Pease limitation) is $254,200 for single taxpayers ($305,050 for married couples filing jointly).
Personal Exemption. The personal exemption will be $3,950, up $3,900 in 2013. This exemption is subject to a phase-out that starts with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly) and phases out completely at $376,700 ($427,550 for married couples filing jointly).
Alternative Minimum Tax Exemption. The alternative minimum tax exemption for 2014 is $52,800 for single taxpayers ($82,100 for married couples filing jointly), up from $51,900 in 2013 ($80,800 for married couples filing jointly).
Estate Tax Exclusion. The estate tax exclusion is $5,340,000 for 2014, up from $5,250,000 for 2013.
Gift Tax Exclusion. The gift tax exclusion remains unchanged for 2014 at $14,000.
FSA Contributions. The annual dollar limit employees can contribute to their employer-sponsored healthcare flexible spending accounts (FSA) is $2,500 (the same as 2013).
Individual Retirement Account Contributions. The limit on IRA contributions for 2014 is $5,500 (the same as 2013).
Foreign Earned Income Exclusion. The foreign earned income exclusion is $99,200 for 2014, up from $97,600 in 2013.
Earned Income Tax Credit. The maximum Earned Income Credit amount for taxpayers filing jointly is $6,143 for three or more children; $5,460 for two children; $3,304 for one child; and $496 for no children.
Small Employer Health Insurance Credit. The small employer health insurance credit is phased out based on the employer’s number of full-time equivalent employees in excess of ten and the employer’s average annual wages in excess of $25,400 for 2014, up from $25,000 for 2013.
Adoption Credit. For 2014, the adoption tax credit is $13,190. The credit begins to phase out for taxpayers with modified adjusted gross income in excess of $197,880 and is completely phased out at $237,880 or more income levels.
Kiddie Tax. The amount of a child’s income that is exempt from federal income tax is $1,000 (unchanged from 2013).
Hope Scholarship Credit. The maximum Hope Scholarship Credit for 2014 is $2,500. The amount you are entitled to claim is equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000 but not to exceed $4,000.