Maximum contribution limits
The maximum amount you can sock into a 401(k) plan and an individual retirement account will stay the same in 2014.
The consumer price index didn’t rise enough to meet the threshold for a change to the limits on contributions for 401(k)s and IRAs. Next year, the contribution limit for workers in 401(k)s, 403(b)s and most 457 plans will hold at $17,500. Similarly, the catch-up contribution limit for workers over 50 will stay at $5,500.
IRA holders will be able to contribute up to $5,500 per year — unchanged from 2013 — while the catch-up contribution limit for savers over 50 will stay at $1,000.
Estate tax exclusion
The estate tax exclusion will climb slightly next year; the annual exclusion for gifts will hold steady.
Remember how the American Taxpayer Relief Act of 2012 pinned the estate tax exclusion permanently at $5.25 million, adjusted for inflation? That number has been revised upward to $5.34 million for 2014.
The annual exclusion for gift taxes will remain the same, however: $14,000 per person.
Income tax rates
Income tax brackets have been revised slightly to reflect inflation.
This year, $400,000 and $450,000 were the magic income numbers that would place single and married-filing-jointly taxpayers, respectively, in the highest income tax bracket of 39.6%. Those numbers have crept up to $406,750 for singles and $457,600 for married couples who file jointly.
Income tax brackets for trusts and estates also have shifted slightly. In 2013, a trust only had to produce $11,950 to hit the top tax rate of 39.6%. Next year, it’ll be $12,150.
Standard and itemized deductions
Standard deductions are climbing slightly, and the income threshold that would trigger limits on itemized deductions is also up.
The standard deduction for taxpayers who don’t itemize their deductions is up modestly, $6,200 for singles and $12,400 for married-filing-jointly, up from $6,100 and $12,200 in 2013.
High income earners will need to know about slightly higher income thresholds that will trigger limits on itemized deductions.
This year, individuals with more than $250,000 in adjusted gross income – and married couples who file jointly and earned more than $300,000 – were subject to cuts in personal exemptions and itemized deductions.
Next year, limits on itemized deductions will apply to those with incomes over $254,200 for singles and $305,050 for married filing jointly.
Flexible savings accounts
People with flexible savings accounts will be able to carry over up to $500 from one year to another.
The FSA, which has been around for nearly 30 years, is a tax-advantaged account that allows workers to sock away some of their pre-tax earnings for qualified medical expenses. The major downside, however, has been that workers have been required to use all of the money within the account by the end of the year or lose it. Current law also permits plan sponsors the option of allowing a 2.5 month grace period after the end of the year to use the money.
Now, the Treasury Department and the IRS have pulled together to allow workers to carry up to $500 in their health FSAs for the following year. Plan sponsors with non-calendar cafeteria plan years can start using this option this year.
The amount that workers can put in their accounts each year — up to $2,500 — remains the same.
Be warned, however: These FSAs cannot have a carryover and a grace period — it’s either one, the other or neither.
