Income Tax Facts
Federal and state income taxes will have a major impact on your life,
beginning with your first year of residency. Consider the following:
Last Year’s Tax Freedom Day-April 21, 2014
Single Tax Rates
Taxable Income
Tax Rate
$
0-$ 9,075
10.0%
$ 9,076-$ 36,900
15.0%
$ 36,901-$ 89,350
25.0%
$ 89,351-$186,350
28.0%
$186,351-$405,100
33.0%
$405,101-$406,750
35.0%
$406,751 & Over
39.6%
Married Filing Jointly Tax Rates
Taxable Income
Tax Rate
$
0-$ 18,150
10.0%
$ 18,151-$ 73,800
15.0%
$ 73,801-$148,850
25.0%
$148,851-$226,850
28.0%
$226,851-$405,100
33.0%
$405,101-$457,600
35.0%
$457,601& Over
39.6%
AGI Income Rank
AGI
Share of Federal Tax Paid
Top 1%
Above $434,682 (21.90%)
38.10%
Top 5%
Above $175,817 (36.80%)
58.90%
Top 10%
Above $125,195 (47.90%)
70.20%
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Limited Time Opportunities
You will have opportunities during the next few years to do some
things that you will not be able to do later in your working career.
There are income limitations on Roth IRAs, Traditional IRAs, the
deductibility of student loan interest and other provisions of the
Internal Revenue Code.
Traditional IRA
Roth IRA
AGI Limitations
AGI Limitations
Married Filing Jointly
$96,000-$116,000
$181,000-$191,000
Single
$60,000-$ 70,000
$114,000-$129,000
Student Loan Interest
AGI Limitations
Married Filing Jointly
$130,000-$160,000
Single
$ 65,000-$ 80,000
Lifetime Learning Credit
AGI Limitations
Married Filing Jointly
$108,000-$128,000
Single
$ 54,000-$ 64,000
Taking advantage of these and other limited time
opportunities can lead to significant tax savings.
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Common Tax Traps
Claiming Too Many Exemptions on the W-4
In order to increase take-home pay, people will claim too many
exemptions on their W-4. The more exemptions claimed, the less
federal, state and county income tax is withheld. While this helps
monthly cash flow it leads to a lousy April 15 and large balances due
on the income tax returns.
Moonlighting (Working as an Independent Contractor) Without
Proper Tax Planning and Record-Keeping
Early in their careers, many medical professionals will take on extra
work as an independent contractor to supplement their regular income.
As an independent contractor, they are responsible for all of their own
taxes and are considered self-employed. In addition to federal, state
and county income taxes, they will also have to pay self-employment
taxes, which can run as high as 15.3%. Self-employed individuals pay
their taxes in quarterly installments and can incur significant penalties
if the quarterly estimates are not paid. Because of the high tax rates
self-employed people pay, record-keeping is extremely important
because taxes are paid on self-employed income minus the expenses
incurred in producing the income. Again, not paying the quarterly
estimates when due and not keeping the records needed to document
expenses can lead to a lousy April 15.
Working for Multiple Employers With Too Little Tax Withheld
From Each One
One of my clients, a resident anesthesiologist, worked part-time for
several clinics and hospitals. Because he earned a relatively small
amount from each employer, very little income tax was withheld.
From an overall perspective, however, his earnings for the year put him
in a high tax bracket and led to a large balance due on April 15 because
of the minimal income tax withholding.
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Pay as You Earn, Income Based
Repayment and Married Filing
Separately
Every year we field questions about whether or not it is beneficial for married couples to
file separately in order to qualify for lower payments under the Pay as You Earn or
Income Based Repayment programs. The answer to that question depends on the facts
and circumstances for each taxpayer. Important factors to consider are:
1. The amount of income from the spouse without student loan debt;
2. Whether the married couple would normally claim the standard deduction or use
itemized deductions;
3. Are there other dependents (children) besides the spouses and who would be able to
claim them if the return is filed on a married filing separately basis;
4. What deductions or credits would be lost if married filing separately is utilized
The child care credit, the adoption credit and all education credits are disallowed to
taxpayers using a married filing separately status. Exclusions or deductions for U.S. bond
interest, tuition and fees deduction and student loan interest are also disallowed for
taxpayers using a married filing separately status. Married couples filing separately must
also use the same type of deductions (itemized or standard) as their spouse. Special rules
also apply as to which spouse can claim various itemized deductions as well.
Non tax factors that should be considered are the impact lower payments will have on
overall interest payments on the loans and the effect debt forgiveness can have on future
taxes.
A qualified tax professional can help you determine the amount of tax you will pay filing
jointly and separately with your spouse. The extra tax you might have to pay utilizing the
married filing separately status and the lowered student loan payments under IBR and
PAYE programs are only two of the factors you must consider in determining which filing
status to use.
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Married Filing Separately (MFS)
Credit or Deduction
Disadvantage of MFS
Lost Credits
Earned Income Credit
Credit for the Elderly or the Disabled
Child and Dependent Care Credit
Adoption Credit
Lost Education Benefits
Education Credits
Student Loan Interest Deduction
Tuition and Fees Deduction
Savings Bond Interest Exclusion
Standard Deduction
If one spouse itemizes deductions, the
other must also itemize (that is, cannot
claim the standard deduction).
Taxable Social Security
A greater percentage of Social
Security Benefits may be taxable.
IRAs
Traditional IRA deduction and Roth
IRA contributions are phased out at
$10,000 of modified AGI.
Spousal IRA rules do not apply.
Passive Losses and AMT Exemption Both affected by using the MFS filing
status
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