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2014 Tax Brackets, Standard Deduction, and Other Changes

After two announcements last week from the IRS, we now have a good idea of what the 2014 tax year will look like, barring any further legislative changes.

Of course, the biggest change for many people will be the new premium subsidy credit for insurance purchased on the new Affordable Care Act exchanges. But because a) that’s an article all on its own and b) we’ve covered it before, let’s take a look at some of the other changes.

The tax brackets for 2014 are as follows:

Single 2014 Tax Brackets

Taxable Income
Tax Bracket:
$0-$9,075 10%
$9,076-$36,900 15%
$36,901-$89,350 25%
$89,351-$186,350 28%
$186,351-$405,100 33%
$405,101-$406,750 35%
$406,751+ 39.6%

 

Married Filing Jointly 2014 Tax Brackets

Taxable Income
Tax Bracket:
$0-$18,150 10%
$18,151-$73,800 15%
$73,801-$148,850 25%
$148,851-$226,850 28%
$226,851-$405,100 33%
$405,101-$$457,600 35%
$457,601+ 39.6%

 

Head of Household 2014 Tax Brackets

Taxable Income
Tax Bracket:
$0-$12,950 10%
$12,951-$49,400 15%
$49,401-$127,550 25%
$127,551-$206,600 28%
$206,601-$405,100 33%
$405,101-$432,200 35%
$432,201+ 39.6%

 

Married Filing Separately 2014 Tax Brackets

Taxable Income
Marginal Tax Rate:
$0-$9,075 10%
$9,076-$36,900 15%
$36,901-$74,425 25%
$74,426-$113,425 28%
$113,426-$202,550 33%
$202,551-$228,800 35%
$228,801+ 39.6%

 

Standard Deduction and Personal Exemption Amounts

Adjusting the standard deduction amounts for inflation, we get the following for 2014:

  • Standard deduction (single or married filing separately): $6,200
  • Standard deduction (married filing jointly): $12,400
  • Standard deduction (head of household): $9,100

The additional standard deduction for people who have reached age 65 (or who are blind) is $1,200 for married taxpayers or $1,550 for unmarried taxpayers.

Personal Exemption Amount and Phaseout

The personal exemption amount for 2014 is increased to $3,950.

As in 2013, however, the personal exemption is subject to a phaseout. Specifically, the total personal exemptions to which you’re entitled will be reduced by 2% of the amount by which your adjusted gross income (that is, the bottom line of the first page of your Form 1040) exceeds a certain threshold amount (adjusted for inflation for 2014):

  • $254,200 for single taxpayers,
  • $305,050 for married taxpayers filing jointly,
  • $279,650 for taxpayers filing as head of household, and
  • $152,525 for married taxpayers filing separately.

“Pease” Limitation on Itemized Deductions

As in 2013, the amount of itemized deductions which you are allowed to claim is reduced by 3% of the amount by which your adjusted gross income exceeds certain threshold amounts. These threshold amounts are the same as the threshold amounts listed above for the personal exemption phaseout. Two important exceptions to this rule are that:

  1. Your itemized deductions cannot be reduced by more than 80% as a result of this limitation, and
  2. Your itemized deductions for medical expenses, investment interest expense, casualty/theft losses, and gambling losses are not reduced as a result of this limitation.

Non-Changes to Taxes on Investment Income

Because of the permanent changes implemented by the American Taxpayer Relief Act of 2012, qualified dividends and long-term capital gains will be subject to the same 0%, 15%, and 20% tax rates as last year, depending on which tax bracket the income falls into.

In addition, the 3.8% tax on net investment income is unchanged, because the threshold amounts (adjusted gross income of $200,000 if single or $250,000 if married filing jointly) are not indexed for inflation.

IRA and 401(k) Contribution Limits

For 2014, most retirement account contribution limits remain unchanged:

  • $5,500 for Roth and traditional IRAs, with an additional catch-up contribution of $1,000 for people age 50 or older, and
  • $17,500 for 401(k), 403(b), and most 457 plans, with an additional catch-up contribution of $5,500 for people age 50 or older.

The maximum possible contribution for defined contribution plans (e.g., for a self-employed person with a sufficiently high income contributing to a SEP IRA) is increased from $51,000 to $52,000.

AMT Exemption Amount

Finally, because the exemption amount for the Alternative Minimum Tax is now permanently indexed to inflation, we get the following AMT exemptions for 2014:

  • $52,800 for single taxpayers,
  • $82,100 for married taxpayers filing jointly, and
  • $41,050 for married taxpayers filing separately.

For More Information, See My Related Book:

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Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions, exemptions, and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

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If you want to discuss this article, I recommend starting a conversation over at the Bogleheads investing forum.
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