Update on 2014’s New Tax Rules

Health Reform

Individuals without health insurance will owe a tax.

Although the Obama administration delayed to 2015 the requirement that employers with 50 or more full-time workers provide employees with affordable health coverage or pay a stiff fine, the 2014 starting date for the individual mandate wasn’t deferred. Taxpayers must have qualifying coverage for themselves and their dependents to avoid this tax. This includes, for example, health coverage purchased through an exchange and federal coverage such as Medicare, Medicaid, Tricare and veteran’s coverage.

Individuals for whom coverage is too expensive are exempt from the tax. Employees whose share of premiums exceeds 8% of the household’s AGI won’t be hit. The same is true for people ineligible for employer coverage if the cost of a basic bronze-level plan in an exchange, less any tax credit for buying insurance, exceeds 8% of household AGI. Also exempt: Filers without coverage for periods of less than three months.And people who can show that a hardship forced them to go without coverage, including individuals whose insurance was canceled and who can’t buy an affordable policy.

The tax for being uninsured is normally the higher of two amounts:
The basic penalty or an income-based levy. The basic penalty is $95 a person ($47.50 for each family member who is under the age of 18), with a ceiling of $285. The income-based penalty is 1% of the excess of the taxpayer’s household AGI over the minimum level of AGI needed to trigger filing a return… $10,150 for singles and $20,300 for couples, plus $3,950 per dependent. The tax is lowered proportionally for any months the taxpayer had coverage. The levies will be higher in 2015 and 2016.
But in no case can the tax exceed the cost of a bronze-level exchange plan for the taxpayer and family members, also adjusted for months with health coverage.

IRS has limited remedies to collect this tax. It cannot use liens or levies, so it can only offset tax refunds. Nor can it charge interest on the unpaid balance.

Lower-income earners get a refundable tax credit to help them afford coverage. They can elect to have the credit sent directly to an exchange to help pay premiums or take the credit on their returns. The credit is allowed on a sliding scale for filers with household income over $11,490 for singles and $23,550 for a family of four. It ends as household income hits $45,960 for singles and $94,200 for a family of four.

Social Security

The Social Security wage base increases this year to $117,000, up $3,300 from the cap for 2013. The tax rate imposed on employers and employees remains 6.2%, and the employer’s share of Medicare tax stays at 1.45%, but the 0.9% Medicare surtax kicks in for singles with wages exceeding $200,000 and couples earning over $250,000. The surtax doesn’t affect the employer’s share. Self-employed individuals are also subject to the surtax.

Social Security benefits rise just 1.5% in 2014, due to low inflation. The earnings limits are heading up, too. People who turn 66 this year do not lose any benefits if they make $41,400 or less before they reach that age. Individuals between ages 62 and 66 by the end of 2014 can make up to $15,480 before they lose any benefits. There’s no earnings cap once a beneficiary turns 66.
The amount needed to qualify for coverage climbs to $1,200 a quarter. So earning $4,800 anytime during 2014 will net the full four quarters of coverage.
The threshold for the nanny tax rises to $1,900 this year, a $100 boost.


The basic Medicare Part B premium remains $104.90 per month in 2014.
Upper-income seniors still have to pay higher Part B and D premiums if their modified adjust gross income for 2012 exceeded $170,000 for couples or $85,000 for single people. Modified AGI is AGI plus any tax-exempt interest, EE bond interest that’s used for education and excluded foreign earned income. The Part B surcharge for 2014 won’t change, and the Part D ad-on will rise slightly. The total surcharge on upper-incomers can be as large as $300.10 a month.


The annual caps on deductible contributions to HSAs have increase this year. The ceilings rise slightly to $6,550 for account owners with family coverage and to $3,300 for self-only coverage. Individuals born before 1960 can put in $1,000 more. The limits on out-of-pocket costs, such as deductibles and co-payments, will increase to $12,700 for people with family coverage and to $6,350 for individual coverage. Minimum policy deductibles will stay at $2,500 for families and $1,250 for singles.

The limits on deducting long-term-care premiums are a slightly higher. Taxpayers who are age 71 or older can write off as much as $4,660 per person. Filers age 61 to 70…$3,720. Those who are 51 to 60 can deduct up to $1,400. Individuals age 41 to 50 can take $700. And people age 40 and younger…$370. Also, the limit for tax free payouts under such policies increases to $330 a day.

 Savings Plans

The deduction phase-outs for contributions to regular IRAs start at higher levels, from AGIs of $96,000 to $116,000 for couples and $60,000 to $70,000 for singles. If only one spouse is covered by a plan, the phase-out for deducting a contribution for the uncovered spouse begins at $181,000 of AGI and finishes at $191,000.

The income ceilings on Roth IRA contributions go up. Contributions phase out at AGIs of $181,000 to $191,000 for couples and $114,000 to $129,000 for singles.

The contribution limitation for defined contribution plans increases to $52,000. That’s a $1000 hike for profit sharing plans and similar arrangements.

Retirement plan contributions can be based on up to $260,000 of salary. And the benefit limit for pension plans is rising to $210,000 in 2014.
The 401(k) contribution cap remains $17,500, plus $5,500 for people 50 and up.

IRA and Roth contribution limits stay at $5,500…$1,000 extra for tax payers born before 1965.

Fringe Benefits

U.S. taxpayers working abroad have a slightly larger exclusion…$99,200.

Caps on transit passes and commuter vans fall sharply this year to $130 a month.

The monthly limitation on tax free parking goes up to $250.


The income caps are higher for tax free EE bonds used for education. The exclusion starts phasing out about $113,950 of AGI for married couples and $76,000 for singles. It ends when AGI hits $143,950 and $91,100, respectively.

The student loan interest deduction begins to phase out at higher levels, beginning when AGI exceeds $130,000 for couples and $65,000 for single filers.

The lifetime learning credit also starts phasing out at higher income levels… from $54,000 to $64,000 of AGI for singles and $108,000 to $128,000 for couples.


The adoption credit can be taken on up to $13,190 of costs, a $220 boost. If the credit is more than the filer’s tax liability, the excess is not refundable. The full $13,190 credit is available for a special needs adoption, even if it cost less. The credit starts to dry up for filers with AGIs over $197,880 and ends at $237,880.

The exclusion for company-paid adoption aid also increases to $13,190.


Tax Rate Table

2014 income tax brackets are slightly wider but the tax rates did not change




Not more than $18,150 10% of taxable income

Over $18,150 but not more than $73,800

$1,815.00 +15% of excess over $18,150
Over $73,800 but not more than $148,850 $10,162.50 + 25% of excess over $73,800
Over $148,850 but not more than $226,850 $28,925.00 + 28% of excess over $148,850
Over $226,850 but not more than $405,100 $50,765.00 + 33% of excess over $226,850
Over $405,100but not more than $457,600 $109,587.50 + 35% of excess over $405,100
Over $457,600 $127,962.50 + 39.6% of excess over $457,600



Not more than $9,075 10% of taxable income

Over $9,075 but not more than $36,900

$907.50 +15% of excess over $9,075
Over $36,900 but not more than $89,350 $5,081.25 + 25% of excess over $36,900
Over $89,350 but not more than $186,350 $18,193.75 + 28% of excess over $89,350
Over $186,350 but not more than $405,100 $45,353.75 + 33% of excess over $186,350
Over $405,100 but not more than $406,750 $117,541.25 + 35% of excess over $405,100
Over $406,750 $118,118.75 + 39.6% of excess over $406,750



Not more than $12,950 10% of taxable income

Over $12,950 but not more than $49,400

$1,295.00 +15% of excess over $12,950
Over $49,400 but not more than $127,550 $6,762.50 + 25% of excess over $49,400
Over $127,550 but not more than $206,600 $26,300.00 + 28% of excess over $127,550
Over $206,600 but not more than $405,100 $48,434.00 + 33% of excess over $206,600
Over $405,100 but not more than $432,200 $113,939.00 + 35% of excess over $405,100
Over $432,200 $123,424.00 + 39.6% of excess over $432,200



Personal Taxes

Standard deductions for 2014 rise a slightly. Married people get $12,400. If one spouse is age 65 or older…$13,600. If both are…$14,800. Singles can claim $6,200…$7,750 if they’re 65. Household heads get $9,100 plus $1,550 more once they reach age 65. Blind people receive $1,200 more ($1,550 is unmarried and not a surviving spouse).

High-incomer earners lose their itemized deductions above a higher level for 2014. Their write-offs are slashed by 3% of the excess of AGI over $254,200 for singles, $279,650 for household heads and $305,050 for marrieds. But the total reduction can’t exceed 80% of itemizations. Medicals, investment interest, casualty losses and gambling losses (to the extent of winnings) are exempted from this cutback.

Personal exemptions increase to $3,950 for filers and their dependents. However, this write-off is phased out for upper-incomers. It is trimmed by 2% for each $2,500 of AGI over the same thresholds for the itemized deduction phase-out.

The 20% top rate on dividends and long-term gains starts at a higher level for 2014…singles with taxable income above $406,750, household heads over $432,200 and joint filers above $457,600. The 3.8% Medicare surtax boosts the rate to 23.8%. The regular 15% maximum rate applies for filers with incomes below these amounts, except that filers in the 10% or 15% income tax bracket still get the special 0% rate.

Minimum Tax

AMT exemptions are increasing for 2014. They jump to $82,100 for couples and $52,800 for both singles and heads of household. The phase-out zones for the exemptions start at higher income levels as well…above $156,500 for couples and $117,300 for single filers and household heads. Also, the 28% AMT tax bracket kicks in a little later in 2014…above $182,500 of alternate minimum taxable income.

Estate & Gift Tax

The estate and gift tax exemption for 2014 increases upward to $5,340,000. The rate remains 40%. The gift tax exclusion stays at $14,000 per donee. Up to $1,090,000 of farm or business realty can receive discount estate tax valuation.

Business Taxes

The standard mileage rate is 56 cents per mile for business driving, down half a cent from 2013. The rate for medical travel and moving is 23.5 cents a mile. The allowance for the charitable driving is unchanged…14 cents a mile.
The tax credit for small firms that offer health coverage has increased for 2014. The top credit rises to 50% (35% for tax-exempt groups) of the lesser of what they pay for employee coverage bought via an exchange or the average group exchange premium for small businesses in their state. However, the full credit is available only to firms with 10 or fewer full-time-equivalent employees and average wages of $25,400 or less. It falls rapidly for firms with more employees and higher pay, completely phasing out for businesses with more than 25 workers or average pay in excess of $50,800. Employers must contribute at least 50% toward the cost of coverage to get the credit.

Only $25,000 of business assets can be expensed.
50% bonus depreciation has ended.
The work opportunity tax credit for hiring disadvantaged workers has ended.
The 15-year depreciation for restaurant renovations and leasehold improvement has ended.

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