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2014 IRS Tax Brackets and Rates With Standard Deduction and Personal Exemption Updates

The IRS has released the 2014 federal tax brackets based on annual inflation adjustments. An updated 2014 tax table is provided below. Given the low inflation environment there were only moderate increases in tax brackets, standard deductions and to the personal exemption. The main changes for the 2014 tax year are:

  • Marginal tax rates remained the same as last year with 39.6% being the highest marginal tax rate
  • The standard deduction increased by $100 for single filers and married people filing separate returns. For married filers filing joint returns the standard deduction increase was $200 and for heads of household the increase it was $150
  • The personal exemption rises by $50 to $3,950.  However, the exemption is subject to a phase-out (per law enacted earlier this year) that begins with AGI of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
  • The Alternative Minimum Tax (AMT ) exemption amount for single filers will be $52,800 vs $51,900 in 2013. It will be $82,100, for married couples filing jointly vs $80,800 in 2013
  • The maximum Earned Income Credit (EIC) amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of

    $6,044 for tax year 2013

  • Estate tax exclusion rises to 5,340,000, up from $5,250,000 in 2013
  • The gift tax exclusion remains at $14,000
  • Flexible spending arrangements (FSA) employee contribution limits remains unchanged at $2,500
  • Foreign earned income exclusion rises by $1,600 to $99,200

How to figure your effective and marginal tax rate: Because the US tax system is progressive or graduated, your effective tax rate is not a flat rate. Your taxes are figured based on the portion of your taxable income that falls into the respective tax bracket, with the top rate you pay (based on the final bracket you fall in) being your marginal tax rate. For example, if you’re single and have a taxable  annual income of $60,000 (your actual income may be much higher) after deducting your applicable personal exemption, standard or itemized deduction, you pay 10% on a portion of your taxable income up to the 2014 expected bracket limit of $9,075, 15% on the next portion and 25% on the third and final portion. Your marginal or top tax rate is 25%, with your effective tax rate being total taxes paid, divided by total income. In this case it would be $10,856/$60,000 = 18.1%.

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