By Jason Bramwell
Bloomberg BNA last week released its projected US inflation-adjusted tax rates for 2014, which include many new amounts pertaining to the American Taxpayer Relief Act of 2012 (ATRA) and the Affordable Care Act (ACA).
Using data from the consumer price index, Bloomberg BNA's projections for 2014 are designed to give tax preparers and advisors a jump-start for tax preparation, year-end estimation, and tax planning. The IRS typically does not release the annual inflation adjustments until later in the fall.
The projections take into account significant changes to the tax code that were made by recent legislation. For example, ATRA instituted a new marginal top tax rate of 39.6 percent 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.
"The American Taxpayer Relief Act also reinstituted the 'Pease' limitation on itemized deductions and indexed it for inflation", wrote Stephanie Fiumara, tax law editor for Bloomberg BNA. "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 the American Taxpayer Relief Act, 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."
The projections also include many new amounts relating to the ACA that go into effect next year.
"For the first time, health flexible spending arrangements are indexed for inflation, and the limitation is expected to be $2,500 for 2014", Fiumara wrote. "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 include the following:
- $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.
- $2,500 for households with income at least 300 percent but less than 400 percent of the poverty line.
An important feature of next year's projections is that Bloomberg BNA highlighted figures the IRS appears to be adjusting incorrectly, which is the result of the rounding conventions used in the tax code, Fiumara said.
"The tax code requires some figures to be rounded after adding the increase amount, while other figures are adjusted after rounding the increase", she wrote. "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", Fiumara continued. "In this situation, the IRS continues to adjust the $5,000 increase in the threshold phase-out 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 provided both outcomes and detailed this apparent error in another blog.