2015 IRS Annual Inflation Adjustment

Highlights of the 2015 Annual Inflation Adjustments by IRS

On October 30th, 2014, the Internal Revenue Service (IRS) announced the 2015 annual inflation adjustments. Let's look at some of the highlights of these adjustments.

Tax slabs:

Every new tax years brings changes to the Tax slabs and 2015 will be no different. For the 2015 tax year, the IRS has revised the tax slab thresholds including standard deductions and personal exemptions for all categories of taxpayers. You can find the details of these changes in our recent post.

Itemized deductions:

For 2015, the limitations for itemized deductions begin at $258,250 and above for individuals and $309,900 above for married couples who file their returns together. In 2014, for individuals these limitations started at $254,200 and above, and at $305,050 and above for married couples who file their returns together.

Alternative Minimum Tax:

For unmarried individuals, the exemption amount for alternative minimum tax has been increased to $53,600 in 2015 from $52,800 in 2014. For married couples who file their returns jointly, the exemption amount for alternative minimum tax is $83,400, up from $82,100 in 2014. For married individuals, who file their returns separately, the exemption for alternative minimum tax stands at $41,700.

For individuals, the 28 percent AMT rate is applicable to any alternative minimum taxable income over $185,400, against $182,500 in 2014. For married taxpayers who file their returns separately, the 28 percent AMT income limit is $92,700, up from $91,250 in 2014.

The maximum Earned Income Tax Credit (EITC) for married couples, who are filing their returns together, and have one child, is $3,359. For couples with two children, EITC is $5,548. For couples with three or more children, EITC is $6,242. And for couples with no children, EITC is $503.

Kiddie tax threshold has been increased to $1,050 in 2015, from $1,000 in the previous year. This amount refers to a child's unearned net income, which is free of federal income tax. Unearned net income stands for income received through dividends, interest or other capital gains.

Adoption credit for adopting a child with special needs stands at $13,400. For other adoptions, the maximum credit available for eligible adoption expenses also stands at $13,400. In 2014, both these amounts were $13,190. This credit starts phasing out at higher incomes, with phase outs starting from modified adjusted gross income (MAGI) above $201,010. Phase outs for adoption credit end at MAGI of $241,010 and above.

Estates of descendants:

The basic exclusion amount for estates of descendants who die in 2015 is $5,430,000. This has been increased from $5,340,000 for estates of descendants who died in 2014.

For those with non-US citizen spouses, gifts to their spouses of up to $147,000 are excluded from tax in 2015. This amount is up from $145,000 in 2014.

For qualifying citizens, foreign-earned income of up to $100,800 is excluded from tax. This is an increase from $99,200 in 2014.

Employees can now contribute $2,550 to healthcare flexible spending arrangements (FSA), which are sponsored by their employer, also known as a cafeteria plan. This is a $50 increase from the $2,500 in the previous year.

For those who are aged (above 65) or blind, the extra standard deduction for 2015 is $1,250, which is up from $1,200 in 2014. This higher standard can also be claimed if your spouse is above 65 or is blind.

In all, IRS has announced more than 40 updates, which can be found here. Note that all these changes will be effective from January 1st, 2015. You can use these revised numbers in the year 2016, when you are filing the returns for the 2015.

iCalculator's US Tax Calculator has been updated to include all of the above changes. Use the calculator to assess the impact of these changes.