While there are no new tax laws to worry about in 2014 (so far), there are some important and beneficial provisions that expired on December 31, 2013, as part of the following laws:
- Patient Protection and Affordable Care Act
- Health Care and Education Reconciliation Act of 2010
- The American Taxpayer Relief and Accountability Act of 2013 (ATRA)
Expired Tax Provisions for Individuals
Certain tax credits and deductions for individuals expired as of December 31, 2013. It is unclear whether any of these provisions will be retroactively extended.
For individuals, expired tax provisions include:
- State and local sales tax deduction
- Above-the-line deduction for certain expenses of teachers
- Above-the-line deduction for qualified tuition and related expenses
- Deduction for mortgage insurance premiums deductible as qualified interest
- Parity for exclusion for employer-provided mass transit and parking benefits
- Exclusion of discharge of principal residence indebtedness from gross income
- Credit for health insurance costs
- Tax-free distributions from individual retirement accounts (IRAs) for charitable purposes
- Credit for non-business energy property
“In 2014, everyone is required to have health insurance or pay an additional tax.”
Expired Tax Provisions for Businesses
Certain tax credits and deductions for businesses also expired as of December 31, 2013. It is unclear whether any of these provisions will be retroactively extended.
For businesses, expired tax provisions include:
- Research and experimentation credit
- Work opportunity tax credit
- Increase in expensing to $500,000/$2 million and expanded definition of Section 179 property
- Bonus depreciation
- Employer wage credit for activated military reservists
- Special rules for qualified small business stock
- Reduction in S corporation recognition period for built-in gains tax
- Election to accelerate alternative minimum tax credits in lieu of additional first-year depreciation
- 15-year straight line cost recovery for qualified leasehold, restaurant and retail improvements
- Enhanced charitable deduction for contributions of food inventory
- Basis adjustment to stock of S corporations making charitable contributions of property
The Health Care Act (“Obamacare”)
For 2013 tax returns to be filed by April 15, 2014, taxpayers who itemize deductions on Schedule A may now only deduct unreimbursed medical expenses that exceed 10% of adjusted gross income (AGI), up from 7.5% previously. Flexible spending accounts (FSAs) have a $2,500 pre-tax limit. Also, over-the-counter drugs are now excluded as eligible FSA medical expenses. Note: If FSA funds are used for non-medical expenses, the tax penalty is 20%.
New in 2014, everyone is required to have health insurance (for at least nine months out of the year) or pay an additional tax. The tax will be a flat fee or 1% of your AGI, whichever is greater. However, the tax will never exceed the cost of purchasing a bronze-level health insurance plan on the exchanges, which the Congressional Budget Office estimates will be roughly $4,500 for individuals and $12,000 for families in 2014. In 2014, the tax will not be less than $95 per adult or $47.50 per child, with a maximum penalty of $285 per household. The tax for those without insurance goes up to 2% of AGI in 2015 and 2.5% of AGI in 2016 (the flat fees increase as well).
Also new in 2014, businesses with fewer than 25 employees may be eligible for a tax credit of up to 50% of the cost of insurance provided to their employees. The average wage of employees must be less than $50,000 per year and the employer must pay at least half the total premiums. For more information about Obamacare, visit the Department of Health & Human Services.
Stay tuned for more tax news. Congress is no stranger to retroactive legislation. Many of the expired provisions may be extended as part of the current budget negotiations. In fact, most of these provisions are already called “tax extenders,” having been extended from 2010 when all the Bush tax cuts were set to expire.