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November 27, 2013

2014 Tax Brackets

Kyle Pomerleau

Kyle Pomerleau

Download (PDF) Fiscal Fact No. 404: The 2014 Tax BracketsNOTE: Click these links to see the 2015 tax brackets, and 2016 tax brackets.

Introduction

Every year, the IRS adjusts more than forty tax provisions for inflation. This is done to prevent what is called “bracket creep.” This is the phenomenon by which people are pushed into higher income tax brackets or have reduced value from credits or deductions due to inflation instead of any increase in real income.

The IRS uses the Consumer Price Index (CPI) to calculate the past year’s inflation and adjusts income thresholds, deduction amounts, and credit values accordingly.

Income Tax Brackets and Rates

In 2014, the income limits for all brackets and all filers will be adjusted for inflation and will be as follows (Table 1).[1] The top marginal income tax rate of 39.6 percent will hit taxpayers with an adjusted gross income of $406,751 and higher for single filers and $457,601 and higher for married filers.

Table 1. 2014 Taxable Income Brackets and Rates
Rate Single Filers Married Joint Filers Head of Household Filers
Source: Internal Revenue Service
10% $0 to $9,075 $0 to $18,150 $0 to $12,950
15% $9,076 to $36,900 $18,151 to$73,800 $12,951 to $49,400
25% $36,901 to $89,350 $73,801 to $148,850 $49,401 to $127,550
28% $89,351 to $186,350 $148,851 to $226,850 $127,551 to $206,600
33% $186,351to $405,100 $226,851 to $405,100 $206,601 to $405,100
35% $405,101 to 406,750 $405,101 to 457,600 $405,101 to $432,200
39.6% $406,751+ $457,601+ $432,201+

Standard Deduction and Personal Exemption

The standard deduction will increase by $100 from $6,100 to $6,200 for singles (Table 2). For married couples filing jointly, it will increase by $200 from $12,200 to $12,400.

Next year’s personal exemption will increase by $50 to $3,950.

Table 2. 2014 Standard Deduction and Personal Exemption
Filing Status Deduction Amount
Source: Internal Revenue Service
Single $6,200.00
Married Filing Jointly $12,400.00
Head of Household $9,100.00
Personal Exemption $3,950.00

PEP and Pease

PEP (personal exemption phase-out) and Pease are two provisions in the tax code that increase taxable income for high-income earners. PEP is the phase out of the personal exemption and Pease (named after former Senator Donald Pease) reduces the value of most itemized deductions once a taxpayer’s adjusted gross income reaches a certain point.

The income threshold for both PEP and Pease will be $254,200 for single filers and $305,050 for married filers (Tables 3 & 4). PEP will end at $376,700 for singles and $427,550 for couples filing jointly, meaning these taxpayers will no longer have a personal exemption.

Table 3. 2014 Pease Limitations on Itemized Deductions
Filing Status Income Threshold
Source: Internal Revenue Service
Single $254,200.00
Married Filing Jointly $305,050.00
Head of Household $279,650.00
Table 4. Personal Exemption Phase-out
Filing Status Phase out Begin Phase out Complete
Source: Internal Revenue Service
Single $254,200.00 $376,700.00
Married Filing Jointly $305,050.00 $427,550.00
Head of Household $279,650.00 $402,150.00

Alternative Minimum Tax

Since its creation in the 1960s, the Alternative Minimum Tax (AMT) has not been adjusted for inflation. Thus, Congress was forced to “patch” the AMT by raising the exemption amount to prevent middle class taxpayers from being hit by the tax as a result of inflation.

On January 2, 2013 the American Taxpayer Relief Act of 2012 finally indexed the income thresholds to inflation, preventing the necessity for an annual patch.

The AMT exemption amount for 2014 is $52,800 for singles and $82,100 for married couple filing jointly (Table 5).

Table 5. 2014 Alternative Minimum Tax
Source: Internal Revenue Service
Filing Status Exemption Amount
Single $52,800.00
Married Filing Jointly $82,100.00
Married Filing Separately $41,050.00

Earned Income Tax Credit

The 2014 maximum Earned Income Tax Credit for singles, heads of households, and joint filers is $496 if the filer has no children (Table 6). For one child the credit is $3,305, two children is $5,460, and three or more children is $6,143.

Table 6. 2014 Earned Income Tax Credit Parameters
Filing Status No Children One Child Two Children Three or More Children
Source: Internal Revenue Service
Single or Head of Household Earned Income Level for Max Credit $6,480 $9,720 $13,650 $13,650
Maximum Credit $496 $3,305 $5,460 $6,143
Income Level When Phase out Begins $8,110 $17,830 $17,830 $17,830
Income Level When Phase-out Ends (Credit Equals Zero) $14,590 $38,511 $43,756 $46,997
Married Filing Jointly Earned Income Level for Max Credit $6,480 $9,720 $13,650 $13,650
Maximum Credit $496 $3,305 $5,460 $6,143
Earned Income Level When Phase-out Begins $13,540 $23,260 $23,260 $23,260
Earned Income Level When Phase out Ends (Credit Equals Zero) $20,020 $43,941 $49,186 $52,427

[1] Internal Revenue Service, IRS Revenue Procedure 2013-35, in Internal Revenue Bulletin 2013-47, Nov. 18, 2013, http://www.irs.gov/pub/irs-drop/rp-13-35.pdf. All following charts and tables derive data from this document.

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About the Author

Kyle Pomerleau

Resident Fellow, American Enterprise Institute

Kyle Pomerleau is a resident fellow at the American Enterprise Institute (AEI), where he studies federal tax policy. Before joining AEI, Mr. Pomerleau was chief economist and vice president of economic analysis at the Tax Foundation, where he led the macroeconomic and tax modeling team and wrote on various tax policy topics, including corporate taxation, international tax policy, carbon taxation, and tax reform. Read more.

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

Inflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.

A tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat.

The standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act as an incentive for taxpayers not to itemize deductions when filing their federal income taxes.

Itemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. 

A tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.

Taxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income.

The Alternative Minimum Tax (AMT) is a separate tax system that requires some taxpayers to calculate their tax liability twice—first, under ordinary income tax rules, then under the AMT—and pay whichever amount is highest. The AMT has fewer preferences and different exemptions and rates than the ordinary system.