Inflation Adjustments for 2014 Tax Numbers

September 21, 2013
By Kaye A. Thomas

The August inflation numbers are out, and that means it is now possible to determine the 2014 amounts for many of the tax numbers that are adjusted each year for inflation. Among the numbers affected are the size of the income tax brackets, personal exemptions, and the income levels where various tax benefits begin to phase out. The IRS usually waits at least a few weeks before announcing these numbers, but we’ve done our own calculations, which are available in our Reference Room.

inflation-rate-of-changeThere aren’t any surprises in this year’s numbers. Inflation for this period was about 1.7%, a bit lower than the last couple of years but in line with the average over the period since the financial crisis hit. Most items will be adjusted by roughly that percentage, although some, such as the limit on IRA contributions, remain the same due to rounding rules.

The calculation rules for some items, such as the limit on 401k contributions, require use of the September inflation  number, which isn’t available yet. We’ll update those numbers in October.

Technical glitch

Due to an apparent error in the way the law was drafted, the manner of calculating the AMT exemption amount for taxpayers who are married filing jointly isn’t clear. It appears that Congress intended to have the inflation-adjusted amount rounded to the nearest $100. They set the base amount at $78,750, though, and said the amount of the adjustment would be rounded to the nearest $100. This rule requires the adjusted figure to end in 50 instead of ending in 00 as Congress likely intended.

For 2013, rounding the final result instead of the adjustment produced a larger exemption amount, and the IRS went with that method of calculating this figure. Things work the opposite way for 2014: rounding the final result yields a smaller exemption amount than we would get by strictly following the language of the statute. It remains to be seen how the IRS will handle the issue this year.

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