The Bloomberg BNA Federal Tax Blog is a forum for practitioners and Bloomberg BNA editors to share ideas, raise issues, and network with colleagues about federal tax topics. The ideas presented here are those of individuals and Bloomberg BNA bears no responsibility for the appropriateness or accuracy of the communications between group members.
Thursday, September 19, 2013
by Stephanie Fiumara
For a second
year, Bloomberg BNA has released projected inflation-adjusted amounts for thresholds,
limits and deductions in the tax code using data from the consumer price index
released Sept. 17.
projected inflation adjustments, made using a derivative of the formula in §1(f)(3)
of the Code, are designed to give tax preparers and advisers the opportunity to
initiate tax preparation, year-end estimation, and tax planning as soon as
possible. The Internal Revenue Service (IRS) typically does not release the
annual inflation adjustments until later in the fall.
projections also take into account significant changes to the Code that were
made by recent legislation. For example, the American Taxpayer Relief Act of
2012 (ATRA) (Pub. L. No. 112-240) instituted a new marginal top tax rate of 39.6%
for taxpayers with income exceeding an inflation-adjusted threshold. The
threshold is expected to begin at $457,600 for married taxpayers filing jointly
and $406,750 for unmarried individuals in 2014. ATRA also re-instituted the
“Pease” limitation on itemized deductions and indexed it for inflation. The
Pease limitation is expected to impact taxpayers with AGI above $305,050
(married filing jointly) or $254,200 (unmarried) for 2014. The alternative
minimum tax (AMT) was also indexed for inflation by ATRA, and Bloomberg BNA has
included projected amounts for the threshold amount used to calculate the
tentative minimum tax, AMT
exemptions, and exemption phase-out levels.
also include many new amounts relating to the Affordable Care Act (Pub. L. No.
111-148) that take effect in 2014. For the first time, health flexible spending
arrangements are indexed for inflation, and the limitation is expected to be
$2,500 for 2014. The penalty on individual taxpayers for failure to maintain
minimum essential health coverage will be $95 for 2014 and will increase
sharply in later years. The premium assistance credit also takes effect in
2014, and the amounts used to determine the limitation on the increase of tax
for excess advance payments are:
• $600 for households with income less
than 200 percent of the poverty line;
• $1,500 for households with income at
least 200 percent but less than 300 percent of the poverty line; and
• $2,500 for households with income at
least 300 percent but less than 400 percent of the poverty line.
feature of the Bloomberg BNA projections is that we highlighted figures that
the IRS appears to be adjusting incorrectly. Generally, this is the result of the
rounding conventions used in the Code. The Code requires some figures to be
rounded after adding the increase amount, while other figures are adjusted
after rounding the increase. Using the incorrect rounding rule will not
always impact the result, but there
are multiple situations where the results differ. For example, the AMT exemption
amounts for taxpayers who are married filing jointly or surviving spouses can
either be $82,150 or $82,100 depending on when rounding occurs.
For the earned
income tax credit, the different results are not related to rounding. In this
situation, the IRS continues to adjust the $5,000 increase in the threshold
phaseout amount for married taxpayers filing jointly, despite §32(b)(3)(B)(ii)
stating that the adjustment occurs only for tax years beginning in
2010. Bloomberg BNA has provided both
outcomes and detailed this apparent error in a 2013 blog entry (http://www.bna.com/error-earned-income-b17179869918/).
Bloomberg BNA also included some items that are
not adjusted for inflation in 2014, but will be adjusted in future years. Including these items allows practitioners to
identify areas that will change in coming years and highlights a planning
opportunity in these areas.
projections include adjustments to the excise tax rates applicable to arrow
shafts and passenger air transportation.
Be sure to check out Bloomberg BNA’s Excise Tax Navigator and Chart
Builder, which include detailed coverage on these excise taxes as well as many
For the full Bloomberg BNA projected inflation adjustments, please visit http://www.bna.com/projected-tax-rates/.
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