May 9, 2011

CCH Predicts Tax Relief from 2015 Inflation Adjustments – Part 2
September 25th, 2014

Riverwoods, Ill. (September 18, 2014) By

Higher-income Taxpayers Also Benefit
The 2015 year represents the third year that the 39.6-percent tax bracket for higher-income taxpayers, enacted by the American Taxpayer Relief Act of 2012, also known as ATRA, will be imposed. For 2015, Wolters Kluwer, CCH projects that the minimum income amounts at which this top tax rate will kick in will rise to $464,850 (from $457,600) for married joint filers, $439,000 (from $432,200) for heads of households, $413,200 (from $406,750) for unmarried filers, and $232,425 (from $228,800) for married separate filers. These inflation-adjusted amounts also trigger a 20-percent tax on that portion of taxable income attributable to net capital gains and qualified dividends that exceed these bracket amounts.

“Higher-income” taxpayers also must face the new “Medicare” taxes that started in 2013, CCH noted. They are the 3.8-percent surtax on net investment income and a 0.9-percent Medicare contributions tax on earned income. The net investment income tax is triggered when adjusted gross income exceeds: $250,000 (married joint filers and qualifying widowers), $200,000 (for heads of households and single filers), and $125,000 (for married single filers). The additional Medicare contributions tax is triggered when a taxpayer’s wages, compensation, or self-employment income exceed these same threshold amounts. These amounts, however, are not adjusted for inflation and therefore remain the same for 2015.

Inflation Adjustments
Since the late 1980s, the U.S. Tax Code has required that federal income tax brackets be adjusted for inflation annually, and inflation adjustments have been inserted into the Internal Revenue Code in recent years with increasing frequency.

For example, the Code now requires over 50 other inflation-driven computations to determine deduction, exemption and exclusion amounts in addition to the 40 separate computations needed to inflation-adjust the tax bracket tables each year. In fact, the Patient Protection and Affordable Care Act added an even greater number of inflation adjustments to the tax code, including figures affecting the Code Sec. 36B premium assistance tax credit, the income level under which an individual may not be penalized for failure to comply with the individual mandate, and the amount of salary reductions that can be made through a flexible spending arrangement. Some of these health-related inflation adjustments, however, have been delayed for tax years after 2014 or beyond.

Notable as one of the provisions that ATRA now requires to be permanently adjusted for annual inflation is the estate and gift tax applicable exemption. Set at a $5 million level for 2011, the amount has been adjusted for inflation by Congress to $5,120,000 for 2012, $5,250,000 for 2013, $5,340,000 for 2014, and now projected at $5,430,000 for 2015. A spousal portability election can now effectively protect double that amount against estate and gift tax ($10,860,000 for 2015).

Most of the adjustments are based on the Consumer Price Index for all urban consumers’ figures for September through August immediately prior to the adjusted year. However, some inflation-adjusted figures are computed earlier and some later. For example, amounts such as the 2015 vehicle depreciation limits won’t be available until later in 2014, while the 2015 standard business mileage rate (that is currently set at 56 cents for 2014) isn’t expected to be computed and released until December 2014.


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