Are you aware of the new tax laws for 2014? Don’t worry, we can help. We asked Barbara B., a seasoned Tax Expert on JustAnswer, to update our customers on the changes for 2014 and offer valuable insider tax tips. At the top of her list? Changes in FICA taxes, exemptions and deductions, the affordable care act and student loans.
FICA & Medicare Taxes
FICA, or the Federal Insurance Contribution Act, includes both Social Security and Medicare taxes. For those of you less familiar with FICA, this is a payroll tax imposed on both employees and employers to help provide benefits for retirees, the disabled and children of deceased workers. The current FICA tax rate is 7.65%. It is important to note that higher-income earners might be facing an additional 0.9% tax. This results in an effective (or average) tax rate of 2.35% for single taxpayers who earn more than $200,000 and joint filers who earn more than $250,000 a year. Those who are self-employed should be prepared to pay 15.3% in FICA taxes, because they don’t have an employer with which to share the cost.
These increases were due in part to the projected cost of Social Security payments growing faster than its income. While there will be no tax increase this year related to FICA, the wage based tax rate is slated to increase. The wage base is the maximum amount of income that can be taxed for Social Security purposes. In 2013, the wage base was $113,700; in 2014, the wage base is predicted to increase to $115,500.
Exemptions & Deductions
The tax code is designed to accommodate inflation. While many Americans are extremely wary of inflation, this adjustment can actually help taxpayers save money. Adjustments ensure that filers are in the appropriate tax bracket. Adjustments also affect tax breaks such as exemptions and standard deductions.
In 2014, these adjustments could save middle-income married couples as much as $200. Single filers will see savings, as well. Personal exemptions will also be adjusted for inflation, and limits for IRA contributions, education credits and similar benefits will increase.
The Affordable Care Act
The Patient Protection and Affordable Care Act could well be the biggest change to taxes in 2014. Employers with more than 50 full-time equivalent employees will be facing a tax penalty if they fail to provide affordable essential health coverage to their employees.
Individuals who fail to purchase coverage might also be subject to a penalty. Adults could be facing a fine of $95, while the penalty for uninsured children will be $47.50. This fine will increase annually and, by 2016, will be $695 per adult or 2.5% of the total household’s taxable income, whichever is greater.
On the flip side of the penalty are new tax credits and subsidies. Employers with fewer than 50 full-time employees and non-profit organizations could be eligible for tax credits if they meet the minimum coverage requirements.
Individuals will not receive tax credits but could be eligible for subsidies that help them purchase coverage through state or federal health insurance exchanges. You can learn more about the affordable care act here.
The total outstanding student loan debt in the United states is somewhere between $902 billion and $1 trillion. According to the Federal Reserve Board of NY, there are approximately 37 million student loan borrowers with outstanding student loans. Many graduates struggle to pay their student loans after graduation given the difficulty in finding jobs in the current economy. In 2014, students who receive loans to fund their education will have more affordable payments that will not exceed 10% of their income.
Some students will be eligible to have their debts forgiven after a decade, including those who are in the military, and those who work as nurses or teachers. Other students could also be eligible for debt forgiveness after 20 years.
Many of the tax law changes on the horizon would be beneficial to a large percentage of taxpayers. Both refundable and non-refundable tax credits could significantly decrease the tax burden of individuals or couples. If you need additional assistance on your tax returns, we have Experts on JustAnswer that can help.
You can request Barbara directly here.