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10/26/2015

Inflation-Adjusted Figures Released for 2016 (article)


The IRS and the Social Security Administration have released 2016 inflation-adjusted figures for more than 50 tax provisions. Many of the amounts, such as the maximum amount of earnings subject to Social Security, remain unchanged, while some will increase slightly. There is no word yet from Congress on the fate of the popular tax extenders such as bonus depreciation and the increased business expensing election.

Tax Rate Tables

The highest marginal tax rate for individuals of 39.6 percent applies in 2016 to taxable income over $466,950 for married couples filing jointly ($415,050 for single taxpayers). This is an increase of $2,100 ($1,850) over 2015 levels. See the end of this article for all of the individual and estate/trust income tax rate tables for 2016.

The thresholds related to the 3.8% Medicare tax on unearned income and the 0.9% Medicare tax on wages and self-employment income remain unchanged for 2016 ($250,000 for married couples filing jointly; $200,000 for single filers) as these amounts are not indexed for inflation. Estates and trusts enjoy a slight increase in the 3.8% Medicare tax threshold, however, since that threshold is equal to the dollar amount at which the highest income tax bracket begins.

Alternative Minimum Tax (AMT)

For 2016, the AMT exemption increases from $83,400 to $83,800 for married couples filing jointly and from $53,600 to $53,900 for single filers. The AMT exemption is reduced by 25 percent of the amount by which alternative minimum taxable income exceeds $159,700 for married couples filing jointly ($119,700 for single taxpayers).

For 2016, the 28 percent AMT rate applies to excess alternative minimum taxable income above $186,300 ($93,150 for married taxpayers filing separately).

Exemptions

The personal exemption and the dependency exemption are $4,050 for 2016, an increase of $50. Personal exemptions phase out beginning at an adjusted gross income (AGI) level of $311,300 for married couples filing jointly ($259,400 for single filers) and are completely phased out at an AGI level of $433,800 for married couples filing jointly ($381,900 for single filers).

Overall Limitation on Itemized Deductions

Individuals with AGI in excess of certain thresholds must reduce the amount of allowable itemized deductions by the lesser of 3% of the excess of AGI over those thresholds, or 80% of the total amount of otherwise allowable itemized deductions. For 2016, that threshold is $311,300 for married couples filing jointly ($259,400 for single filers).

Standard Deduction

The standard deduction for married couples filing a joint return remains the same at $12,600 for 2016. The standard deduction for single individuals and married couples filing separate returns also is unchanged at $6,300 for 2016. The standard deduction for heads of household increases from $9,250 to $9,300 for 2016.

Estate and Gift Tax

For 2016, the lifetime exclusion from estate and gift tax has increased from $5,430,000 to $5,450,000.

The annual gift tax exclusion in 2016 remains unchanged at $14,000. Gift splitting allows married couples to give up to $28,000 to a person without making a taxable gift. The exclusion for gifts to a spouse who is not a citizen of the United States increases $1,000 to $148,000 for 2016.

Education

The Hope Scholarship credit (American Opportunity Tax Credit) is equal to 100 percent of the amount of qualified tuition and related expenses not in excess of $2,000, plus 25 percent of those expenses that exceed $2,000 but do not exceed $4,000. The maximum credit for 2016 is $2,500. For tax years beginning in 2016, this credit begins to phase out for single individuals whose modified adjusted gross income (MAGI) exceeds $80,000 and at $160,000 for married couples filing joint returns.

For tax years beginning in 2016, the Lifetime Learning Credit begins to phase out for single individuals whose MAGI exceeds $55,000 and at $111,000 for married couples filing joint returns. This credit is completely phased out at MAGI of $65,000 for single individuals and $131,000 for married couples filing joint returns.

For 2016, the $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for single individuals with MAGI in excess of $65,000 and for married couples filing joint returns with MAGI in excess of $130,000. The deduction is completely phased out for single individuals with MAGI of $80,000 or more and for married couples filing joint returns with MAGI of $160,000 or more.

Children

For 2016, the amount used to reduce the net earned income reported on a child’s return subject to the kiddie tax remains at $1,050. The same $1,050 amount is used to determine if a parent may elect to include a child’s gross income in the parent’s income and to calculate the kiddie tax.

Foreign Earned Income

For individual taxpayers who work overseas, the amount of foreign earned income that may excluded from taxation increases from $100,800 to $101,300 in 2016.

COLA Limits for Qualified Plans

The cost of living adjustments (COLAs) affect the maximum limits for a variety of contributions and distributions for 2016, including defined benefit accounts, 401(k)s, and other defined contribution plans, as well as limits on employee stock ownership plans (ESOPs) and benefits to highly-compensated employees.

Defined contribution plans

The limits on elective deferrals to 401(k)s, 403(b)s, certain 457s, and the federal government’s Thrift Savings Plan remains unchanged at $18,000 for 2016. The limit on annual additions to defined contribution plans remains unchanged for 2016 at $53,000.

Defined Benefit Plans & ESOPs

The maximum amount a defined benefit plan may pay a participant each year remains unchanged at $210,000 for 2016. The amount for determining the maximum ESOP account subject to a five-year distribution period remains unchanged at $1,070,000 in 2016. The dollar amount used to determine the lengthening period of the five-year distribution also remains unchanged at $210,000 for 2016.

Compensation Related Limits / Definitions

The annual compensation limit relating to the maximum compensation counted for an eligible employee in a qualifying plan remains unchanged at $265,000 for 2016. The limitation used in the definition of a highly-compensated employee also remains unchanged at $120,000. The dollar limitation concerning the definition of key employee in a top heavy plan remains unchanged in 2016 at $170,000. The compensation amount relevant to the definition of control employee for fringe benefit valuation purposes in 2016 remains unchanged at $105,000 for officers and $215,000 for other employees.

Individual Retirement Accounts (IRAs)

Eligible taxpayers can contribute up to $5,500 to an IRA (excluding catch-up contributions discussed below). For taxpayers who are active participants in an employer-sponsored retirement plan, the deduction for making contributions to a traditional IRA is phased out for single taxpayers who have modified adjusted gross income (MAGI) between $61,000 and $71,000, which is unchanged from 2015. For married couples filing a joint return, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $98,000 to $118,000 in 2016, the same as for 2015. For married couples filing a joint return, in which the spouse who makes the IRA contribution is not an active participant in an employer-sponsored retirement plan but the other spouse is a participant, the deduction is phased out if the couple’s income is between $184,000 and $194,000, up from $183,000 and $193,000 in 2015.

The MAGI phase-out range for taxpayers making contributions to a Roth IRA in 2016 is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000. For single taxpayers, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000 in 2015.

Catch-up Contributions

Eligible individuals age 50 and above may make catch-up contributions to IRAs, 401(k)s and other savings arrangements. The catch-up amount for 401(k)s, 457s, 403(b)s, and SEPs remains unchanged at $6,000 for 2016. The $1,000 catch-up amount for IRAs is not indexed for inflation.

SIMPLE Plans

The elective deferral limit for a SIMPLE plan remains unchanged at $12,500 in 2016. The $3,000 catch-up amount for SIMPLE plans remains unchanged for 2016.

Social Security Wage Base Increases for 2015

The maximum amount of earnings subject to Social Security remains unchanged for 2016 at $118,500. The Social Security Administration also reported that Social Security and Supplemental Security Income benefits will not increase for 2016.

We have only summarized the most common inflation adjustments here. For more information, please click on the links below.

2016Tax Rate Tables

Married Individuals Filing Joint Returns and Surviving Spouses
If Taxable Income is: The Tax is:
Not over $18,550 10% of the taxable income
Over $18,550 but not over $75,300 $1,855 plus 15% of the excess over $18,550
Over $75,300 but not over $151,900 $10,367.50 plus 15% of the excess over $75,300
Over $151,900 but not over $231,450 $29,517.20 plus 28% of the excess over $151,900
Over $231,450 but not over $413,350 $51,791.50 plus 33% of the excess over $231,450
Over $413,350 but not over $466,950 $111,818.50 plus 35% of the excess over $413,350
Over $466,950 $130,578.50 plus 39.6% of the excess over $466,950

Unmarried Individuals (other than Surviving Spouses and Heads of Households)
If the Taxable Income Is: The Tax Is:
Not over $9,275 10% of the taxable income
Over $9,275 but not over $37,650 $927.50 plus 15% of the excess over $9,275
Over $37,650 but not over $91,150 $5,183.75 plus 25% of the excess over $37,650
Over $91,150 but not over $190,150 $18,558.75 plus 28% of the excess over $91,150
Over $190,150 but not over $413,350 $46,278.75 plus 33% of the excess over $190,150
Over $413,350 but not over $415,050 $119,934.75 plus 35% of the excess over $413,350
Over $415,050 $120,529.75 plus 39.6% of the excess over $415,050

Married Individuals Filing Separate Returns
If the Taxable Income Is: The Tax Is:
Not over $9,275 10% of the taxable income
Over $9,275 but not over $37,650 $927.50 plus 15% of the excess over $9,275
Over $37,650 but not over $75,950 $5,183.75 plus 25% of the excess over $37,650
Over $75,950 but not over $115,725 $14,758.75 plus 28% of the excess over $75,950
Over $115,725 but not over $206,675 $25,895.75 plus 33% of the excess over $115,725
Over $206,675 but not over $233,475 $55,909.25 plus 35% of the excess over $206,675
Over $233,475 $65,289.25 plus 39.6% of the excess over $233,475

Heads of Households
If the Taxable Income Is: The Tax Is:
Not over $13,250 10% of the taxable income
Over $13,250 but not over $50,400 $1,325 plus 15% of the excess over $13,250
Over $50,400 but not over $130,150 $6,897.50 plus 25% of the excess over $50,400
Over $130,150 but not over $210,800 $26,835 plus 28% of the excess over $130,150
Over $210,800 but not over $413,350 $49,417 plus 33% of the excess over $210,800
Over $413,350 but not over $441,000 $116,258.50 plus 35% of the excess over $413,350
Over $441,000 $125,936 plus 39.6% of the excess over $441,000

Estates and Trusts
If the Taxable Income Is: The Tax Is:
Not over $2,550 15% of the taxable income
Over $2,550 but not over $5,950 $382.50 plus 25% of the excess over $2,550
Over $5,950 but not over $9,050 $1,232.50 plus 28% of the excess over $5,950
Over $9,050 but not over $12,400 $2,110.50 plus 33% of the excess over $9,050
Over $12,400 $3,206 plus 39.6% of the excess over $12,400

Copyright © 2015, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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