In 2014, individual taxpayers will receive some relief by way of the mandatory upward inflation adjustments called for under the Tax Code, according to CCH, a part of Wolters Kluwer. CCH has released projected income ranges for each of the 2014 tax brackets as well as a growing number of other inflation-sensitive tax figures, such as the personal exemption and the standard deduction.

When there is an upward adjustment for inflation, the indexing of brackets can lower tax bills by including more of taxpayers’ incomes in lower brackets – in the existing 15 percent rather than the existing 25 percent bracket, for example. The formula used in indexing showed relatively low inflation throughout 2013. Nevertheless, many 2014 figures therefore have increased.

In addition, tax planners will have more certainty moving into 2014. By enacting the American Taxpayer Relief Act of 2012 (ATRA) at the beginning of 2013, Congress permanently extended several of the formerly temporary provisions whose fate often hinged on end-of-the-year legislation. This ensures that in 2014 taxpayers will know for certain that the Alternative Minimum Tax exemptions and other important figures will be adjusted for inflation.

Tax Rates

The current tax rates, as enacted under ATRA, are: 10, 15, 25, 33, 35, and 39.6-percent. CCH projects that inflation during 2013 will raise the 2014 rate brackets for individuals as follows:

Joint returns. For married taxpayers filing jointly and surviving spouses, the maximum taxable income for the 10% bracket is $18,150 (up from $17,850 in 2013); for the 15% tax bracket $73,800 (up from $72,500 in 2013); for the 25% tax bracket $148,850 (up from $146,400 in 2013); for the 28% tax bracket $226,850 (up from $223,050 in 2013); for the 33% tax bracket $405,100 (up from $398,350 in 2013); and for the 35% tax bracket $457,600 (up from $450,000 in 2013). Above the 35% threshold, taxpayers will fall within the top 39.6% tax bracket.

Heads of Household. For heads of household, the maximum taxable income for the 10% bracket is $12,950 (up from $12,750 in 2013); for the 15% tax bracket $49,400 (up from $48,600 in 2013); for the 25% tax bracket $127,550 (up from $125,450 in 2013); for the 28% tax bracket $206,600 (up from $203,150 in 2013); for the 33% tax bracket $405,100 (up from $398,350 in 2013); and for the 35% tax bracket $432,200 (up from $425,000 in 2013). Above the 35% threshold, taxpayers will fall within the top 39.6% tax bracket.

Single filers. For unmarried single filers who are not heads of household or surviving spouses, the maximum taxable income for the 10% bracket is $9,075 (up from $8,925 in 2013); for the 15% tax bracket $36,900 (up from $36,250 in 2013); for the 25% tax bracket $89,350 (up from $87,850 in 2013); for the 28% tax bracket $186,350 (up from $183,250 in 2013); for the 33% tax bracket $405,100 (up from $398,350 in 2013); and for the 35% tax bracket $406,750 (up from $400,000 in 2013). Above the 35% threshold, taxpayers will fall within the top 39.6% tax bracket.

Married filing separately. For married taxpayers filing separately, the maximum taxable income for the 10% bracket is $9,075 (up from $8,925 in 2013); for the 15% tax bracket $36,900 (up from $36,250 in 2013); for the 25% tax bracket $74,425 (up from $73,200 in 2013); for the 28% tax bracket $113,425 (up from $111,525 in 2013); for the 33% tax bracket $202,550 (up from $199,175 in 2013); and for the 35% tax bracket $228,800 (up from $225,000 in 2013). Above the 35% threshold, taxpayers will fall within the top 39.6% tax bracket.

Estates and trusts. For estates and trusts, the maximum taxable income for the 15% tax bracket is $2,500 (up from $2,450 in 2013); for the 25% tax bracket $5,800 (up from $5,700 in 2013); for the 28% tax bracket $8,900 (up from $8,750 in 2013); and for the 33% tax bracket $12,150 (up from $11,950 in 2013). Above the 33% threshold, taxpayers will fall within the top 39.6% tax bracket. There is no 35% tax bracket for estates and trusts.

Standard Deduction 

The 2014 standard deduction will be $6,200 for single taxpayers; $12,400 for married joint filers; $9,100 for heads of household; and $6,200 for married separate filers.

2014 Personal Exemption

The 2014 personal exemption is projected to increase by $50, to $3,950, up from $3,900 in 2013. The phase out of the personal exemption for higher income taxpayers will begin after taxpayers pass the same income thresholds set forth for the limitation on itemized deductions.

Limitation on Itemized Deductions

For higher income taxpayers who itemize their deductions, there is a limitation on the amount of itemized deductions that can claim. This limitation was not in effect for several years, but was reinstated by ATRA for tax years beginning on or after January 1, 2013. The limitation will be imposed at income above the following levels: For married couples filing joint returns or surviving spouses, the income threshold will be $305,050, up from $300,000 in 2013. For heads of household, the threshold will be $279,650 in 2014, up from $275,000 in 2013. For single taxpayers, the threshold will be $254,200, up from $250,000 in 2013. For married taxpayers filing separate returns, the 2014 threshold will be $152,525, up from $150,000 in 2013.

AMT Exemptions

ATRA provided for the annual inflation adjustment of the exemption from AMT income. Previously, this inflation adjustment had to be enacted by Congress each year. CCH projects that, for 2014, the AMT exemption for married joint filers and surviving spouses will be $82,100 (up from $80,800 in 2013). For heads of household and unmarried single filers, the exemption will be $52,800 (up from $51,900 in 2013).

If you have any questions about these or other inflation adjustments, please contact our tax consultants in Michigan, Houston or Ft. Lauderdale.