For a second
year, Bloomberg BNA has released
inflation-adjusted amounts for thresholds,
limits and deductions in the tax code using data from the consumer price index
released Sept. 17.
The 2014 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.
Bloomberg BNA’s 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.
An important 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 occursonly 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.
Additionally, the 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 others.
For the full Bloomberg BNA projected inflation adjustments, please visit http://www.bna.com/projected-tax-rates/.
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