Changes for 2017
1. The standard deduction for married filing jointly rises to $12,700 for tax year 2017, up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016. For heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.
2. The personal exemption for tax year 2017 remains as it was for 2016: $4,050. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly).
3. For tax year 2017, the 39.6 percent tax rate affects single taxpayers whose income exceeds $418,400 ($470,700 for married taxpayers filing jointly), up from $415,050 and $466,950, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2017 are described in the revenue procedure.
The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).
4. The AMT exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 (for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly). For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).
5. The tax year 2017 maximum Earned Income Credit amount is $6,318 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,269 for tax year 2016. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
6. For tax year 2017 participants who have self-only coverage in a medical savings account, the plan must have an annual deductible that is not less than $2,250, but not more than $3,350; these amounts remain unchanged from 2016. For self-only coverage, the maximum out of pocket expense amount is $4,500, up $50 from 2016. For tax year 2017 participants with family coverage, the floor for the annual deductible is $4,500, up from $4,450 in 2016. However, the deductible cannot be more than $6,750, up $50 from the limit for tax year 2016. For family coverage, the out of pocket expense limit is $8,250 for tax year 2017, an increase of $100 from tax year 2016.
7. For tax year 2017, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for tax year 2016.
8. For tax year 2017, the foreign earned income exclusion is $102,100, up from $101,300 for tax year 2016.
Estates of decedents who die during 2017 have a basic exclusion amount of $5.49 million, up from a total of $5.45 million for estates of decedents who died in 2016.
9. The 401(k) contribution limit remains unchanged at $18,000 for 2017. For single taxpayers covered by a workplace retirement plan, the phase-out range is $62,000 to $72,000, up from $61,000 to $71,000.
10. For married couples filing jointly where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $99,000 to $119,000, up from $98,000 to $118,000.
11. For an IRA contributor who is not covered by a workplace retirement plan and married to someone who is covered, the deduction is phased out if the couple’s income is between $186,000 and $196,000, up from $184,000 and $194,000.
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
12. The income phase-out range for taxpayers making contributions to a Roth IRA is $118,000 to $133,000 for singles and heads of household, up from $117,000 to $132,000. For married couples filing jointly, the income phase-out range is $186,000 to $196,000, up from $184,000 to $194,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
13. The income limit for the saver’s credit (also known as the retirement savings contributions credit) for low- and moderate-income workers is $62,000 for married couples filing jointly, up from $61,500; $46,500 for heads of household, up from $46,125; and $31,000 for singles and married individuals filing separately, up from $30,750.
14. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $18,000.
15. The catch-up contribution limit for employees age 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
16. The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains at $1,000.
The limitation for defined contribution plans under Section 415(c)(1)(A) increased in 2017 from $53,000 to $54,000.
The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $18,000.
17. The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.
18. The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.
The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $18,000.
19. The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.
20. The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) increased from $98,000 to $99,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) increased from $61,000 to $62,000. If an individual or the individual’s spouse is an active participant, the applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $184,000 to $186,000.
Changes for 2016
Tax laws in 2016 will bring some changes you need to know about. By learning about them you'll be better able to take steps that will leave you prepared. Many things aren't changing - Even though the 10 things listed below are changing, many other typical annual changes aren't happening. Contribution limits to 401(k) plans, IRAs, and flexible spending arrangements are all staying the same in 2016 as they were in 2015, reflecting the minimal amount of inflation in the economy.
Most people put off tax planning to the last minute, but by knowing about these coming changes before they take effect, you can do more comprehensive tax planning that will serve you better in 2016 and beyond.
1. Tax Day is April 18
The Washington, D.C., holiday of Emancipation Day is on Friday, April 15, 2016. Under federal law, the tax deadline gets extended when it falls on a holiday or weekend, and so the tax deadline for most taxpayers will be the following Monday, April 18. For those states in New England that celebrate Patriot's Day, an even later April 19 deadline will apply.
2. Tax penalties related to Obamacare
The Affordable Care Act imposed penalties for those not having qualifying health care coverage. Those penalties started at $95 per adult, or 1% of income above the filing threshold in 2014, but they rose to $285 per adult, or 2% of income above the filing limit in 2015. For 2016, penalties will rise again, hitting $695 per adult, or 2.5% of income. A family maximum will apply to the per-person amount, but the $2,085 amount will be substantially higher than the $975 in 2015, and the $285 in 2014.
3. Tax brackets rising
Most of the tax brackets that govern different classes of taxpayers are adjusted for inflation. For 2016, these bracket amounts are rising by roughly 0.4%.
4. Standard deductions are going up for head-of-household filers
The low inflation rate kept standard deductions for most taxpayers steady in 2016 from 2015 levels, including the single, married filing jointly, and married filing separately statuses. For those who qualify as heads of household, the standard deduction will rise $50 to $9,300 in 2016.
5. Personal exemptions rising
The personal exemption that taxpayers are entitled to take on their tax returns will go up by $50 in 2016. That will give everyone an exemption amount of $4,050.
6. Contribution limits on health savings accounts
Health savings accounts let people with high-deductible health plans set money aside on a pretax basis to cover the costs of their health care. For 2016, the contribution limit for individual policies will remain at $3,350, but the maximum contribution for family policies will rise by $100 to $6,750. A catch-up contribution of $1,000 for those 55 or older will continue to apply.
7. The Earned Income Credit
The maximum allowable Earned Income Credit will go up modestly in 2016. For those with three or more qualifying children, the maximum credit will rise to $6,269, up $27. Those with two children will get a maximum $5,572, which is up $24 from 2015, while one-child families can get up to $3,373, $14 more than last year. Those without children get just a $3 bump and can claim up to $506 for 2016.
8. The exemption from AMT
The alternative minimum tax has struck a growing number of taxpayers, making the exemption amount more important than ever. Single taxpayers will see their AMT exemptions go up $300 in 2016 to $53,900, while joint filers will see a $500 boost to $83,800.
9. The estate tax exemption
The lifetime exemption amount for the gift and estate tax is tied to inflation, and it is slated to rise next year as well. The exemption amount will rise to $5.45 million, up $20,000 from 2015. The limit applies to estates of those who pass away in 2016.
10. Other tax provisions
Nearly every year, lawmakers wait until the last minute to renew popular tax breaks, such as charitable distribution from IRAs, state sales tax deductions, teachers' write-offs for classroom supplies, and deductions for private mortgage insurance. As of early December, these provisions hadn't yet been renewed for 2015, but typically, lawmakers renew them retroactive to the beginning of the year. The same is likely in 2016 unless an extension provides for two years of relief rather than just one.