2014 Inflation Adjustments Help Highest and Lowest Earners
This fall, the IRS announced the annual inflation adjustments for 2014, including changes to over 40 tax provisions. The implications are different depending on the tax payer’s income; most high-income taxpayers aren’t lucking out this time, but those with low-income and those at the very top will see some benefits. The adjustments, which are intended to help make up for the rising cost of living, will affect income earned in 2014. (In other words, this won’t change how you file your taxes until 2015.) The following tax items are among those adjusted for inflation.
Adjustments to several tax brackets in 2014 will benefit both very low-income and high-income earners. By raising the upper end of the 10% and 15% tax brackets, taxpayers earning up to $36,900 could see a drop in their taxes. Changes to high-income brackets will also benefit many top earners. The 39.6% bracket will now apply to singles earning $400,000.
To offset for inflation, the IRS has increased the personal exemption amount by $50. This number effects the amount of money one can deduce from income tax for each family member. The change will place the personal exemption amount at $3,950. Taxpayers of several brackets will benefit from the change, but for high income earners, personal exemptions are not applicable.
Slight standard deduction increases will benefit low income earners, including those who are single, married, and heads of household. The standard deduction is the amount of money one can earn before being subject to federal income tax. The amount for singles has risen to $6,200—a $100 increase. Couples filing jointly see a $200 increase to $12,400. For heads of household, an increase of $150 puts their standard deduction at $9,100.
Alternative Minimum Tax
Alternative Minimum Tax, which follows an entirely different system of deductions and rates, has also been adjusted for 2014. The parallel system, imposed on higher-income earners, can tax on up to 28% percent of one’s income. Because of inflation, many upper-middle income earners became subject to the tax. But thanks to the Tax Payer Relief Act of 2012, The AMT now receives annual adjustments for inflation. For 2014, this includes shifting the minimum income subject to AMT up by $900.
Other Items Adjusted for Inflation
Adjustments have also been made to earned income tax credits, the limit for itemized deductions, the annual exclusion for gifts, and the exclusion amount for estates. For complete information on 2014 tax inflation adjustments, you can find the relevant Internal Revenue Bulletin here.