2014 Individual Income Tax Rates

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The IRS recently announced the 2014 individual income tax rates with inflation adjustments wit respect to each tax bracket. Remember, since the American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013, a new tax bracket of 39.4% appeared. Also, note that the 2014 individual income tax rates listed below do not include other taxes such as those imposed on investment income by the new health care laws. Finally, it is important to remember that the default PFIC regime calculations do not depend on your personal tax rate.

As adjusted for inflation, the following marginal income tax rates will apply to individuals in the tax year 2014:

Filing Single

10% $0 – $9,075
15% $9,076 – $36,900
25% $36,901 – $89,350
28% $89,351 – $186,350
33% $186,351 – $405,100
35% $405,101 – $406,750
39.6% $406,751 and greater

Notice the small range of the 35% tax bracket.

Filing Married Filing Jointly and Surviving Spouses

10% $0 – $18,150
15% $18,151 – $73,800
25% $73,801 – $148,850
28% $148,851 – $226,850
33% $226,851 – $405,100
35% $405,101 – $457,600
39.6% $457,601 and greater

Filing Married Filing Separately

10% $0 – $9,075
15% $9,076 – $36,900
25% $36,901 – $74,425
28% $74,426 – $113,425
33% $113,426– $202,550
35% $202,551 – $228,800
39.6% $228,801 and greater

Filing Head of Household

10% $0 – $12,950
15% $12,951 – $49,400
25% $49,401 – $127,550
28% $127,551 – $206,600
33% $206,601 – $405,100
35% $405,101 – $432,200
39.6% $432,201 and greater

Tax Year 2014: Various Tax Benefits Increase Due to Inflation Adjustments

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The Internal Revenue Service recently announced an annual inflation adjustments for the tax year 2014 for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2013-35 provides details about these annual adjustments.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.

The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.

The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).

The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes 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 exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).

The maximum Earned Income Credit 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. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.

Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.

The annual exclusion for gifts remains at $14,000 for 2014.

The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.

The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.
The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

Details on these inflation adjustments and others not listed in this release can be found in Revenue Procedure 2013-35, which will be published in Internal Revenue Bulletin 2013-47 on Nov. 18, 2013.

2014 Tax Season to Start Later Following Government Closure

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The IRS recently announced a delay of approximately one to two weeks to the start of the 2014 filing season to allow adequate time to program and test tax processing systems following the 16-day federal government closure.

The IRS is exploring options to shorten the expected delay and will announce a final decision on the start of the 2014 filing season in December, Acting IRS Commissioner Danny Werfel said. The original start date of the 2014 filing season was January 21, 2014, and with a one- to two-week delay, the IRS would start accepting and processing 2013 individual tax returns no earlier than January 28.

The government closure came during the peak period for preparing IRS systems for the 2014 filing season. Programming, testing and deployment of more than 50 IRS systems is needed to handle processing of nearly 150 million tax returns. Updating these core systems is a complex, year-round process with the majority of the work beginning in the fall of each year.

About 90 percent of IRS operations were closed during the shutdown, with some major workstreams closed entirely during this period, putting the IRS nearly three weeks behind its tight timetable for being ready to start the 2014 filing season. There are additional training, programming and testing demands on IRS systems this year in order to provide additional refund fraud and identity theft detection and prevention.

“Readying our systems to handle the tax season is an intricate, detailed process, and we must take the time to get it right,” Werfel said. “The adjustment to the start of the filing season provides us the necessary time to program, test and validate our systems so that we can provide a smooth filing and refund process for the nation’s taxpayers. We want the public and tax professionals to know about the delay well in advance so they can prepare for a later start of the filing season.”

The IRS will not process paper tax returns before the start date, which will be announced in December. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit. The April 15 tax deadline is set by statute and will remain in place.

IRS Issues a Proposed Regulation Regarding Employer-Sponsored Healthcare Plans

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The IRS recently issued a proposed rule entitled, “Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit” (see, 26 CFR Part 1) regarding the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, and related rules and laws (generally, “PPACA”). In the proposed regulation, the IRS has ruled that employer-sponsored healthcare plans will be unable to include various wellness programs in order to meet minimum value (MV) coverage requirements under the PPACA and related rules. In general, large employers (typically 50 full-time employees or more) who do not meet certain minimum coverage standards under the PPACA must pay an excise tax.

Many employers sought to include wellness programs in their plans in order to reduce health care coverage costs. In general, wellness programs are often designed to reduce potential health problems for employees through various means. Certain wellness programs may even require employees to meet an established health standard.

The article will give a basic summary of a proposed rule and the MV calculation. It is not intended to constitute tax or legal advice. The new rules under the PPACA will involve many complex tax and legal issues, so you are advised to seek an experienced attorney if you have questions in these areas. Sherayzen Law Office, PLLC can assist you in all of your tax, business-planning and legal needs, and help you avoid making costly mistakes.

MV Determinations under the Proposed Regulation

In making its proposed rule, the IRS noted:

“Commentators offered differing opinions about how nondiscriminatory wellness program incentives that may affect an employee’s cost sharing should be taken into account for purposes of the MV calculation. Some commentators noted that the rules governing wellness incentives require that they be available to all similarly situated individuals. These commentators suggested that because eligible individuals have the opportunity to reduce their cost-sharing if they choose, a plan’s share of costs should be based on the costs paid by individuals who satisfy the terms of the wellness program. Other commentators expressed concern that, despite the safeguards of the regulations governing wellness incentives, certain individuals inevitably will face barriers to participation and fail to qualify for rewards. These commentators suggested that a plan’s share of costs should be determined without assuming that individuals would qualify for the reduced cost-sharing available under a wellness program.”

The IRS stated that there are several methods for determining MV (under Notice 2012-31 and 45 CFR 156.145(a)): “the MV Calculator, a safe harbor, actuarial certification, and, for small group market plans, a metal level.” According to the proposed rule, employers may determine whether a certain plan provides MV by utilizing an HHS and IRS MV calculator, unless a safe harbor exists. Certain safe harbor plans will be specified in future guidance.

Under 45 CFR 156.145(a) and the proposed rule, “[P]lans with nonstandard features that cannot determine MV using the MV Calculator or a safe harbor” must use the actuarial certification method. Further, it is required that the actuary performing the MV calculation must be a member of the American Academy of Actuaries and perform the analysis in accordance with generally accepted actuarial principles and methodologies, and its related standards.

Exception to the Wellness Program Rule

The IRS proposed rule does provide one exception to the wellness program MV calculations for certain anti-tobacco related programs. Under the proposed regulation, “…[F]or nondiscriminatory wellness programs designed to prevent or reduce tobacco use, MV may be calculated assuming that every eligible individual satisfies the terms of the program relating to prevention or reduction of tobacco use.”

IRS Investigation of Tax Crimes

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This article will explain the basics of criminal tax investigations. It is extremely important if you find yourself under such an investigation, or believe that the potential for a criminal investigation exists in your case, that you obtain an experienced attorney to represent you.

Internal Revenue Code (IRC) Section 7608(b) grants the right to the criminal investigators of the IRS’ Intelligence Division to investigate tax crimes. There are various means by which the IRS may decide to begin a criminal investigation, including audits that indicate potential fraud, informant’s tips, or other credible reports, such as newspaper articles about fraudulent behavior. An IRS agent will begin to collect more information at this point as part of the procedures of the Internal Revenue Manual in order to establish a “firm indication of fraud.” Once such an indication can be demonstrated, the taxpayer’s civil audit will be suspended, and referred to the Criminal Investigation Division (CID).

The Criminal Investigation Division (CID) of the IRS is empowered under IRC Sections 7622 and 7602 to examine records, books and other supporting documents regarding information contained in tax returns, to take testimony and to administer oaths.

Taxpayers and their representatives will not be informed of the reasons for the suspension once their case is referred to the CID. It is thus crucial that taxpayers be careful regarding any statements they may make to an IRS agent, as the potential exists for such information to be used against them in a criminal proceeding.

After a case is referred to the CID, it will be reviewed by the CID Chief. The Chief will then assign a Special Agent to investigate if it is felt that the case clearly indicates possible fraud. The Special Agent, accompanied by another agent serving as a witness, may then contact the taxpayer, without prior notice. The agent is required to give the taxpayer a Miranda-type warning. An agent may also, in certain circumstances, obtain a search warrant, as well as the summons power under IRC Section 7602.

If an agent determines after the investigation that a prosecution should be in order, the case will then be forwarded to the IRS attorneys. Under the criminal standard of proof, it must be demonstrated that the evidence against the taxpayer is sufficient to prove guilt beyond a reasonable doubt, and that it is a reasonable probability that the taxpayer will be convicted of the crimes alleged.

Once the case is transferred, the taxpayer will then usually have the opportunity to present any defenses at a special conference with the IRS. If the IRS counsel agrees that the taxpayer should be prosecuted after the evidence and arguments presented at the conference, the case will then be referred to the Tax Division of the Department of Justice for review. If the DOJ attorney decides that the taxpayer should be prosecuted, the case may be then transferred to the U.S. Attorney (the DOJ attorney may also give the U.S. Attorney discretion of whether to prosecute, or not, in certain cases). The U.S. attorney may in some circumstances receive the case with an authorization for a grand jury investigation to be conducted.

As can be seen from the information above, criminal tax investigations are a serious matter. There are numerous potential pitfalls that may arise at any step of a tax investigation that may lead a taxpayer to ultimately wind up being convicted for a tax crime.

The taxpayers are advised to obtain experienced tax attorneys to represent them if they believe, at any point in their civil investigation that the potential for a criminal investigation exists.

Contact Sherayzen Law Office for Legal Advice Regarding Criminal Tax Matters

If you believe that you may be subject to a criminal IRS investigation, contact Sherayzen Law Office. Our experienced tax law firm will analyze the facts of your case, offer defense options and rigorously represent your interests during the IRS investigation and any court proceedings.