Here Are the Major Tax Law Changes for 2014

Here Are the Major Tax Law Changes for 2014

Lawmakers decided to allow dozens of tax breaks to expire after 2013, and most of them will not be retroactively revived until late 2014. They include the R & D tax credit, the deduction for state sales tax in lieu of income tax, and the exclusion of up to $ 2 million of forgiven debt on a debtor’s primary home. Also, for taxpayers over 70 1/2 and older to make direct distributions of up to $ 100,000 annually from their IRAs to charity.

Here are some of the more important 2014 new tax rules:

  • A health reform change has most of the attention. Individuals without insurance owe a tax. Although President Obama’s administration delayed the requirement that employers with 50 or more full-time workers provide employees with affordable healthcare coverage or pay a stiff fine, the 2014 starting date for individuals was not changed. People must have qualifying coverage for themselves and their dependents to avoid tax. This includes health coverage provided by an employer that meets minimum federal requirements, coverage purchased through an exchange, and federal coverage such as Medicare, Medicaid, Tricare and veterans coverage.
  • Individuals for whom coverage is too expensive are exempt from the tax. Employees whose share of premiums exceeds 8% of the households AGI won’t incur the penalty or tax. The same for people ineligible for employer coverage if the cost of the basic bronze-level plan in an exchange, less any tax credit for buying insurance, exceeds 8% of household AGI. Also, exempt are filers without coverage for periods of less than 3 months, and people who can show that a hardship forced them to go without coverage.
  • The tax or penalty for being uninsured is the higher of two amounts-The basic penalty of income-based levy. The basic penalty is $95 a person ($47.50 for each family member under 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 proportionately for any months the taxpayer had coverage. The levies will be increased in 2015 and 2016. However, 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 insurance coverage. IRS has limited remedies to collect this tax. It cannot use liens or levies, so it can only offset refunds. Also, no interest on the unpaid balance.
  • Lower income level taxpayers 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 the premiums or apply the credit to their tax return. 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.  The credit is phased-out at $45,960 for singles, and $94,200 for a family of four.
  • The Social Security wage base increases this year to $117,000, up $3,300 from the 2013 cap. The tax rate imposed on employers remains at 6.2%, and the employer’s share of Medicare tax stays at 1.45% of all pay. The employee’s share is 1.45%, but the 0.9% Medicare surtax kicks in for singles with wages exceeding $200,000 and married filers earning over $250,000. The surtax does not affect the employer’s share. Self employed taxpayers are also subject to the surtax.
  • Social Security benefits rise just 1.5% in 2014, due to the reported low inflation. The earnings limits are increased as well. 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 62 and 66 by the end of 2014 can make up to $15,480 before they lose any benefits. There is no earnings cap for individuals over 66.
  • The basic Medicare Part B premium remains $104.90 per month in 2014. Buy higher income seniors will have to pay Part B and D premiums if their adjusted gross income for 2012 exceeded $170,000 of couples or $85,000 for single people.
  • The annual caps on deductible contributions to Health Savings Accounts increased in 2014. The ceiling rises ti $6,550 for account holders with family coverage and to $3300 for singles. Taxpayers born before 1960 can contribute $1000 more each year.The limits for out-of-pocket costs, such as deductibles and co-payments, will increase to $12,700 for taxpayers with family coverage and to $6,350 for singles. Minimum policy deductibles will remain at $2,500 for families and $1,250 for singles.
  • The limits on deducting long-term-care premiums are a bit higher in 2014. Taxpayers who are 71 or older can deduct $4,660 per person, 61-70…$3,720, 51-60 can deduct up to $1,400, ages 41-50 can take $700. And taxpayers age 40 and younger…$370.
  • The income caps are higher for tax free EE bonds used for education. The exclusion starts phasing out above $113,950 of AGI for married couples and $76,000 for singles. It ends when AGI reaches $143,950 and $91,100 respectively for married couples and singles. The student loan interest deduction begins to phase out at higher levels in 2014, beginning when AGI exceeds $130,000 for married couples and $65,000 for singles. The lifetime earning credit also starts phasing out at higher income levels–from $54,000 to $64,000 for AGI for singles and from $108,000 to $128,000 for married couples.
  • The adoption credit can now be taken on up to $13,190 of costs. The full $13,190 credit is available for special needs adoption, even if it costs less. The credit phases-out for filers with AGIs over $197,880 and ends at $237,880. The excess credit over a taxpayer’s liability is not refundable.
  • The standard deduction rises a bit in 2014. Marrieds get $12,400, if one spouse is 65 or older…$13,600, both,,,$14,800. Singles claim $6200…$7,750 if they are 65. Head of Household filers get a standard deduction of $9,100 plus $1,550 more once they reach age 65. Blind people receive $1200 more ($1,550 if unmarried and not a surviving spouse.
  • Taxpayers with higher incomes begin to lose their itemized deductions above a higher level in 2014. Their itemized deductions are reduced by 3% of the excess of AGI over $254,200 for singles, and $279,650 for head of household filers, and $305,050 for married couples. The total reduction cannot exceed 80% of the itemized deductions. Medical expenses, investment interest, casualty losses, and gambling losses are exempted from this reduction.
  • Personal exemptions are increased to $3,950 for taxpayers and their dependents. It is reduced by 2% for each $2,500 of AGI over the same thresholds for the itemized deduction phaseout.
  • The 20% top rate on dividends and long-term gains starts at a higher level in 2014…singles with taxable income over $406,750, household heads over $432,200, and joint filers above $457,600. The 3.8% surtax increases the rate to 23.8%. The regular 15% maximum rate applies to filers wit incomes below these amounts, except that taxpayers in the 10% or 15% income tax bracket still get the special 0% rate.
  • The Estate & Gift tax exemption for 2014 increases to $5,340,000, and the tax rate remains at 40%. The gift tax exclusion remains at $14,000 per donee.
  • The deduction phaseouts for payins to regular IRAs start at higher levels, from AGIs of $96,000 for singles to $116,000 for couples and $60,000 to $70,000 for singles. If one spouse is covered by a plan, the phaseout for deducting a payin for the uncovered spouse begins at $181,000 for AGI and finishes at $191,000. The income levels for Roth IRA payins go up. Contributions phase out at AGIs of $181,000 to $191,000 for couples and $114,000 to $129,000 for singles. The payin limitation for defined contributions plans increases to $52,000. Retirement plan contributions can be based on $260,000 of salary. The benefit plan limit for pension plans is increased to $210,000 in 2014, 401(K) payin cap remains at $17,500, plus $5,500 more for people 50 and older. IRA and Roth IRA payin limits remain at $5,500…and an extra $1000 for people born before 1965.
  • The standard mileage rate decreases to 56 cents per mile for business driving, medical travel and moving rate to 23.5 cents a mile, charitable driving is unchanged at 14 cents.
  • The tax credit for small businesses that offer health coverage is increased for 2014. The top credit rises to 50% of the lesser of what they pay for employee bought via an exchange or the average exchange premium for small business in their state. However, the credit is only to companies with 10 or fewer full-time equivalent employees and higher pay 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 an 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 in 2014, 50% bonus depreciation has ended, ditto for the work opportunity credit for hiring disadvantaged workers, 15 ear depreciation for restaurant renovations and leasehold improvements.

Please feel free to contact with any questions or comments.