Key Tax Numbers for 2014

Social Security Wage Base, Self-employment Rate, Social Security and Medicare Rates

  • 2014 Social Security wage base is $117,000.
  • Self-employed:
    • 2014 self-employment tax rate is 15.3%, which equals the Social Security rate of 12.4% plus the Medicare tax rate of 2.9%.
    • The 15.3% rate applies to earnings of up to $117,000 after the earnings are reduced by 7.65%. Schedule SE is used to figure Self-employment tax.
    • If net earnings exceed $117,000, the 2.9% Medicare rate applies to the entire amount. There is no earnings limit for Medicare tax.
    • One half of the self-employment tax may be deducted on Form 1040 on page one as an above-the-line deduction. Therefore, you don't have to itemize your deductions to claim this deduction.
  • Employees:
    • 2014 social security rate for employees and employers is 6.2% each ($7,254 each), for a total rate of 12.4%.
    • 2014 Medicare tax rate for employees and employers is 1.45% each, for a total of 2.9%.
    • Medicare tax is withheld from all wages regardless of amount.

Additional 0.9% Medicare Tax On Earnings and Additional 3.8% Medicare Tax on Net Investment Income

Additional 0.9% (.009) Medicare Tax On Earnings for 2014:

Higher income taxpayers whose income exceeds a certain threshold may have to pay an additional 0.9% Medicare tax. To determine the threshold, the combined total of wages, salaries, other compensation (i.e. tips, bonuses, and taxable fringe benefits), and net earnings from self-employment are taken into account.

The 0.9% tax is in addition to the regular 1.45% Medicare tax normally due by an employee on all wages and other compensation (2.9% on net earnings from self-employment).

Important things to keep in mind:

  • Form 8959 is used to figure the additional 0.9% Medicare tax.
  • The 0.9% Medicare tax is not based on your adjusted gross income but only on your earnings.
  • A net loss from self-employment does not offset wages.
  • If you had both wages and self-employment income in 2014, first determine if the 0.9% tax applies to your wages, then reduce your threshold amount by your wages to get a reduced threshold amount that is used to determine if the tax applies to the self-employment income (see the example below)..
  • The additional 0.9% Medicare tax is NOT deductible as part of the regular 50% self-employment tax deduction you're allowed to claim on Form 1040 as an above-the-line deduction.
  • The additional 0.9% Medicare tax is entered on Form 1040, Line 62 (the "Other Taxes" section).
  • Even if your employer withheld the additional 0.9% Medicare tax, it does not reduce your liability for the tax figured on Form 8959. In other words, the 0.9% tax is reported separately as an additional tax whether or not your employer withheld the tax.
  • While the additional Medicare tax applies to the portion of earnings over the threshold ($250,000, $200,000, $125,000), an employer will only withhold the tax once wages for the year (including tips, bonuses, and other taxable compensation) exceed $200,000. Therefore, it is possible for some taxpayers to be subject to withholding but not owe the tax, while others will owe the tax but not be subject to withholding.
    • For example, the income threshold for a married couple filing jointly is $250,000. If you had wages of $210,000 and your spouse had wages of $30,000, your total wages would not exceed the $250,000 threshold, and therefore, the additional tax would not apply.

      However, since you had wages over $200,000, your employer would withhold the additional Medicare tax on $10,000, the excess over $200,000 (0.9% x $10,000 = $90).

      Although Form 8959 will show no liability for the tax since you and your spouse's total wages did not exceed $250,000, Form 8959 must still be filed to report the $90 additional Medicare tax withheld by your employer. You would enter the $90 additional Medicare tax on Form 1040, Line 62 in the "Other Taxes" section.

      On the other hand, say an unmarried employee with two employers earned $120,000 in wages from one employer and $100,000 from the other employer. In this case, neither employer would withhold the additional Medicare tax since the employee did not earn over $200,000 from either employer. However, the employee would be liable for the tax since his total wages of $220,000 exceed the $200,000 threshold for single filers.

The 0.9% Medicare tax applies to wages, other employee compensation, and net self-employment earnings exceeding:

  • $250,000 if married filing jointly
  • $125,000 if married filing separately
  • $200,000 for single persons, heads of households, and qualifying widows and widowers.

Example:

  • For 2014, you have wages of $150,000 and your spouse has $175,000 of net earnings from self-employment (Schedule SE, Line 4)
  • Your file a joint return
  • Your income threshold is $250,000

Because you and your spouse do not have wages over $250,000, the .09% tax does not apply to your wages in Part I of Form 8959. In Part II of Form 8959, the $250,000 income threshold is reduced by your wages of $150,000 which results in a reduced self-employment income threshold of $100,000.

Since the $175,000 of self-employment income exceed the reduced threshold of $100,000 by $75,000, there is a Part II tax of $675 on the self-employment income (.09% x $75,000).

Additional 3.8% Medicare Tax on Net Investment Income:

The 3.8% additional Medicare tax is called the Net Investment Income Tax (NIIT). It applies to taxpayers with net investment income if modified adjusted gross income (MAGI) exceeds:

  • $250,000 if married filing jointly or qualifying widows or widowers
  • $200,000 if single or head of household
  • $125,000 if married filing separately

MAGI Thresholds:

The thresholds are based on modified adjusted gross income. MAGI is the same as adjusted gross income (AGI) unless the foreign earned income exclusion is claimed. If the foreign earned income exclusion is claimed, you add it back to your AGI to derive MAGI (minus any above-the-line deductions or exclusions that were disallowed or allocable to the excluded foreign earned income).

If MAGI exceeds the threshold for your filing status, the 3.8% tax applies to the lesser of:

  • Your net investment income or
  • The MAGI exceeding the threshold

For example, if your net investment income is $25,000, but your MAGI exceeds your threshold by $10,000, the 3.8% applies to the lesser amount of $10,000.

Estates and Trusts:

Estates and trusts may also be subject to the net investment income tax. The 3.8% tax generally applies to the lesser of its undistributed net investment income for the year or the excess of its AGI above the annual threshold for the 39.6% bracket for an estate or trust. For 2014, the 39.6% bracket threshold is $12,150.

Grantor trusts and certain charitable trusts are exempt from the 3.8% tax. See Form 8960 for instructions.

Investment income includes:

  • Taxable interest
  • Dividends
  • Payments from commercial annuities
  • Rents
  • Royalties
  • Capital gains from sales of stocks, bonds, mutual funds, or investment real estate including a vacation home.
  • Capital gain distributions from mutual funds, and passive income from partnerships and S corporations, including gain from the sale of a partnership or S corporation interest if you were a passive owner.

Do not count as investment income the following:

  • Social security benefits
  • Nontaxable veterans benefits
  • Income from businesses, including partnerships and S corporations in which you materially participate
  • Tax-exempt interest
  • Distributions from traditional IRAs, Roth IRAs, 401(k) plans and other qualified retirement plans such as pension plans, 403(b) plans and qualified annuity plans
    • Keep in mind, although a taxable distribution from a traditional IRA or a qualified retirement plan is excluded from the investment income category, these distributions are part of your MAGI.

      This means, these distributions can increase your MAGI above the threshold for the 3.8% tax or increase the tax if you are already over the threshold. This does not apply to qualified Roth IRA distributions, tax-exempt interest, or other item excluded from MAGI.
  • Life insurance benefits
  • Alimony

If you sell your home at a gain, treat the gain as investment income for purposes of the 3.8% tax only to the extent that is exceeds the applicable home sale exclusion, which is $250,000 for single taxpayers and $500,000 for joint filers. If the gain is excluded from income, it is not subject to the 3.8% tax.

Form 8960:

Form 8960 is used by individuals, estates, and trusts to figure the Net Investment Income Tax (NIIT).

Investment Expenses:

Investment expenses that are allocable to investment income are entered in Part II of Form 8960 and subtracted from investment income in Part III to arrive at net investment income.

Allocable investment expenses include items such as, brokerage fees, investment advisor fees, investment interest, rental and royalty activity expenses, and state and local income taxes allocable to items included as investment income.

Personal Exemption (for yourself and each dependent)

2014 - Each Allowable Exemption: $3,950

Phaseout of Exemption Starts / Ends:

  • Joint return/Qualifying widow(er): $305,050 / $427,550
  • Head of Household: $279,650 / $402,150
  • Single: $254,200 / $376,700
  • Married filing separately: $152,525 / $213,775

Standard Deduction

  • Joint return and qualifying widow(er): $12,400
  • Head of household: $9,100
  • Single: $6,200
  • Married filing separately: $6,200
  • Dependents - minimum deduction: $1,000
  • Additional Deduction if Age 65 or Older, or Blind:
    • Married-per-spouse, filing jointly or separately:
      • $1,200 ($2,400 for age and blindness)
    • Qualifying widow(er):
      • $1,200 ($2,400 for age and blindness)
    • Single or head of household:
      • $1,500 ($3,000 for age and blindness)

Capital Gain Rates for Assets Held Over One Year

>
Capital Gain Rates 2014
If your top bracket is... Your Maximum Rate is-
10% or 15% 0%
OVER 15% but below 39.6% 15%
39.6% 20%
For collectibles gain and taxable portion of small business stock 28%
For unrecaptured Section 1250 gain on depreciated real estate

NOTE: Unrecaptured Section 1250 gain is figured on the "Unrecaptured Section 1250 Gain Worksheet" in Schedule D instructions. A net loss, if any, from the 28% group reduces unrecaptured Section 1250 gain. The effect of the computation on the Schedule D Tax Worksheet is to tax unrecaptured Section 1250 gain at either a 25% rate or at the regular rates on ordinary income, whichever results in a lower tax.
25%

Qualified Dividends Tax Rate

Qualified Dividend Rates - 2014
If Your Top Bracket Is... Your Qualified Dividends Rate is-
10% or 15% 0%
OVER 15% but below 39.6% 15%
39.6% 20%

IRS Mileage Rates 2014:

  • Business: 56 cents per mile
  • Medical and Moving: 23.5 cents per mile
  • Charitable: 14 cents per mile

Exclusion for Employer Provided Transportation for 2014

  • Transit passes and commuter vehicle transport: $130 per month
  • Qualified parking: $250 per month
  • Qualified bicycle commuting: $20 per month

IRA Contributions for 2014

Traditional IRAs:

  • Traditional IRA contribution limit: $5,500
  • Additional contribution if age 50 or older but under 70 1/2: $1,000
  • Deduction phaseout for active plan participant:
    • Single or head of household: $60,000 - $70,000
    • Married filing jointly, two participants: $96,000 - $116,000
    • Married filing jointly, one participant:
      • Participant spouse: $96,000 - $116,000
      • Non-participant spouse: $181,000 - $191,000
      • Married filing separately, live together, either participates:
        • $0 - $10,000
    • Married filing separately, live apart all year:
      • Participant spouse: $60,000 - $70,000
      • Non-participant spouse: no phaseout

Roth IRAs:

  • Roth IRA contribution limit: $5,500
  • Additional contribution if age 50 or older but under 70 1/2: $1,000
  • Contribution limit phaseout range:
    • Single, head of household: $114,000 - $129,000
    • Married filing separately, live apart all year: $114,000 - $129,000
    • Married filing jointly, or qualifying widow(er): $181,000 - $191,000
    • Married filing separately, live together at any time: $0 - $10,000

Elective Deferral Limits

  • 401(k), 403(b), 457 plans: $17,500
  • Salary-reduction SEP: $17,500
  • SIMPLE IRA: $12,000
  • Additional contribution if age 50 or older:
    • 401(k), 403(b), governmental 457 and SEP plans: $5,500
    • SIMPLE IRA: $2,500

Education

  • American Opportunity credit limit-per student: $2,500
  • Lifetime Learning credit limit-per-taxpayer: $2,000
  • Phaseout of American Opportunity credit:
    • Married filing jointly: $160,000 - $180,000
    • Single, head of household, or qualifying widow(er): $80,000 - $90,000
  • Phaseout of Lifetime Learning credit:
    • Married filing jointly: $108,000 - $128,000
    • Single, head of household, or qualifying widow(er): $54,000 - $64,000
  • Student loan interest deduction limit: $2,500
    • Phaseout of deduction limit:
      • Married filing jointly: $130,000 - $160,000
      • Single, head of household, qualifying widow(er): $65,000-$80.000
  • Coverdell ESA limit: $2,000
    • Phaseout of limit:
      • Married filing jointly: $190,000 - $220,000
      • All others: $95,000 - $110,000
  • Tuition and fees deduction:
    • Tuition and fees deduction-tier 1 limit: $4,000
    • Income cut-off:
      • Married filing jointly: $130,000
      • Single, head of household, or qualifying widow(er) $65,000
    • Tuition and fees deduction limit-tier 2 limit: $2,000
    • Income cut-off:
      • Married filing jointly: $160,000
      • Single, head of household, or qualifying widow(er): $80,000

Long-term Care Premiums

  • Limit on premium allowed as medical expense
    • Age 40 or under: $370
    • Over 40 but not over 50: $700
    • Over 50 but not over 60: $1,400
    • Over 60 but not over 70: $3,720
    • Over 70: $4,660

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