Tax Extenders

Several tax extenders expired at the end of 2013, including but not limited to:

  • Educator expense deduction
  • Tuition expense deductions
  • Deduction for state and local sales taxes
  • Permanent bonus depreciation
  • Tax-free charitable distributions from IRA accounts
  • Exclusion of discharge of principal residence indebtedness from gross income
  • Deduction for mortgage insurance premiums

Legislation is pending to extend these provisions.

Tax bracket adjustments increase about 1.6% over 2013

The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return). All other marginal tax brackets, 10, 15, 25, 28, 33 and 35 were increased by about 1.6%.

Standard deduction

The standard amount you can deduct from income if you don’t itemize your deductions is $6,200 ($12,400 for married couples filing jointly, or $9,100 if you file as head of household).

Social Security wage ceiling

The maximum amount of your earned income on which you pay Social Security tax is now $117,000. When you reach that amount with one employer, they should stop withholding Social Security tax from your pay until the following year.

Foreign earned income exclusion

If you qualify, you can exclude up to $99,200 of your foreign earned income from your taxable income for 2014. If you and your spouse both work in a foreign country and meet the qualifications, you may each be able to exclude up to $99,200.

Adoption Credit

You may qualify for a credit equal to up to $13,190 of your adoption expenses. If your employer provides adoption benefits, you may also be able to exclude up to the same amount from your income. Both a credit and exclusion may be claimed for the same adoption, but not for the same expense. The credit is now permanent and indexed to inflation.

Canceled debt exclusion expired

In 2013, the discharge of qualified principal residence exclusion allowed many to deduct forgiven debt from taxable income. That exclusion expired in 2013, so the deduction is no longer available under current law.

Mortgage insurance premiums

For 2014, you can no longer deduct mortgage insurance premiums, also known as private mortgage insurance (PMI). There is a chance this deduction could be extended, but nothing yet.

Personal exemptions

The personal exemption for 2014 is $3,950, up from $3,900.

Marriage penalty relief

This provision increases the standard deduction for married taxpayers filing jointly, and expands the 15% tax bracket.

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) exemption amount rises in 2014 to $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 for singles and $80,800 for married filing joint.

Earned Income Credit

If you have no children, your maximum Earned Income Credit for 2014 is $496. With two children, the maximum amount is $5,460, and with one child, it is $3,305. If you have three or more qualifying children, the maximum Credit you can receive for 2014 is $6,143 (up from $6,044 in 2013).

Education savings bond income limits

You may be able to exclude all or part of the interest from qualifying Series EE or Series I bonds if you use the income for qualified educational expenses. You cannot take this benefit if your modified adjusted gross income is than $89,700 or more ($142,050 if you file jointly, or if you file as Qualifying Widow(er) with Dependent Child).

American Opportunity Tax Credit

The American Opportunity Tax Credit expanded on the Hope Credit. The income limits are higher, the credit is available for more qualified expenses, and you can use the credit for four years of post-secondary education instead of just two. In addition, you can even get a refund if you don’t owe any tax for up to 40% of the credit ($1,000).

Tuition expense deduction

You can still deduct tuition expenses as an adjustment to income, even if you don’t itemize your deductions. You generally take the tuition expense deduction if you don’t qualify for an education credit or other tax break for the same expenses.

Coverdell Education Savings Accounts increased limit

The new, permanent contribution limit is $2,000 per year.

The Affordable Care Act (ACA)

Changes for 2014 include the addition of the Health Insurance Premium Tax Credit (see below) and the Individual Shared Responsibility Provision. The majority of taxpayers will see minimal impact on their 2014 federal taxes. For more information, visit TaxACT’s website, The site offers tools and information to help you understand the impact of the Affordable Care Act on your taxes. Resources include year-by-year guidance and calculators to estimate your eligibility for the premium tax credit or your tax penalty for being uninsured.

Health Insurance Premium Tax Credit

If individuals or families purchase health insurance through the Health Insurance Marketplace, they may qualify for the new Health Insurance Premium Tax Credit. To qualify for the credit, your household income must fall between 100 percent and 400 percent of the federal poverty line, you may not be claimed as a dependent on any other taxpayer’s return, and (if married), you must file jointly. In the case of spousal abuse or abandonment, this requirement may be waived.

Individual Shared Responsibility Provision

In 2014, each individual taxpayer must carry the required “minimum essential coverage” each month, qualify for an exemption, or pay mandatory taxes. For those facing this new penalty, relief provisions have been written into the tax laws to help taxpayers transition into these new requirements. The minimum amount of insurance coverage you must carry is calculated per family member and then added together.

Limitation on itemized deductions

If you have a high adjusted gross income, you may not be able to take all your itemized deductions, thanks to the Pease provision. Itemized deductions start to phase out at $152,525 if you are married filing separately ($254,200 for individuals, $279,650 if head of household, or $305,050 if filing jointly). Your itemized deductions are reduced by 3% of your adjusted gross income over these amounts, but they are never reduced by more than 80% of your otherwise allowable deductions.

Personal exemption phaseout (PEP)

Your personal exemptions for yourself, your spouse, and your dependents reduce your taxable income by $3,950 each. If your adjusted gross income is over $254,200 ($152,525 if married filing separately, $305,050 if filing jointly, or $279,650 if filing as head of household), your personal exemptions are reduced by 2% for each $2,500 or portion over these amounts. The exemption phases out completely at $376,700 ($427,550 if filing jointly, $213,775 if filing separately, $402,150 if filing as head of household).

Death tax rate

For persons who died in 2014, the federal estate tax rate remains at 40%. This tax only applies to estates larger than $5,340,000 – up from $5,250,000 in 2013.

Standard mileage

The standard mileage rate for the use of your car or other vehicle dropped half a cent to 56 cents per mile for business and 23.5 cents per mile driven for medical or moving purposes. The rate for charitable travel remained the same at 14 cents per mile.

Contribution limits for flexible spending accounts

The most you can contribute to one of these plans remains at $2,500. Your spouse can also contribute $2,500 if he or she meets the qualifications. For certain FSAs, up to $500 can now be carried over to the next year.

Medical Savings Accounts

(1) Self-only coverage. For taxable years beginning in 2014, the term “high deductible health plan” as defined in Sec. 220(c)(2)(A) means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,200 and not more than $3,250, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,350.

(2) Family coverage. For taxable years beginning in 2014, the term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $4,350 and not more than $6,550, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,000.