Caraker Law Firm Blog

2016 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments

Posted by Chad Caraker on Mon, Nov 23, 2015 @ 09:17 PM

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IRS Announces 2016 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments

The IRS recently announced annual inflation adjustments for several tax provisions, which will apply to the 2016 tax year. Some of the affected provisions include: income tax rate schedules, the estate tax exemption, long-term care adjustments, and retirement adjustments. Below is a summary of those adjustments.

Tax Rates. Beginning in the 2016 tax year, the following tax rates will apply:

If the Taxable Income Is:

The Tax for Married Individuals Filing Jointly is:

Less than or equal to $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 25% of the excess over $75,300

Over $151,900 but not over $231,450

 

$29,517.50 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

 

If the Taxable Income Is:

 

The Tax for Heads of Households 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

 

If the Taxable Income Is:

The Tax for Unmarried Individuals 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 39.9% of the excess over $415,050

 

If the Taxable Income Is:

The Tax for Married Individuals Filing Separate Returns 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

 

 

If the Taxable Income Is:

The Tax for Estates and Trusts 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

 

 

$2,100.50 plus 33% of the excess over $9,050

Over $12,400

 

$3,206.00 plus 39.6% of the excess over $12,400

 

 

Estate Tax Exemption. The Estate Tax is a tax imposed on the transfer of property at a person’s death, for any portion of the decedent’s gross estate that exceeds the Federal Estate Tax Exemption. This year the estate tax exclusion has increased from a total of $5,430,000 to $5,450,000. This means that decedents who die in 2016 have an estate tax exclusion that has increased by $20,000 from the previous year.

Long-term Care. Deductions for Long Term Care Insurance Premiums have increased slightly from 2015. The 2016 deductible limits under §213(d)(10) for eligible long-term care premiums are as follows:

Attained Age Before Close of Taxable Year

Limitation on Premiums

40 or less

$390

More than 40 but not more than 50

$730

More than 50 but not more than 60

$1,460

More than 60 but not more than 70

$3,900

More than 70

$4,870

 

Retirement Adjustments. The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the government’s Thrift Savings Plan remains unchanged at $18,000. In addition, if you are 50 or over you can contribute an additional $6,000 as a catch-up contribution. The limit on annual contributions to IRA accounts remains unchanged at $5,500 with the catch-up contribution limit remaining $1,000.

The deduction for taxpayers making contributions to traditional IRA accounts is phased out gradually starting at an Adjusted Gross Income (AGI) of $61,000 for single taxpayers and heads of households, $98,000 for married couples filing jointly (when the spouse who makes the IRA contribution is covered by a workplace retirement plan).  These amounts are unchanged in 2016.  The phase out moves from a starting point of $183,000 to $184,000 for an IRA contributor not covered by a workplace retirement plan but who is married to someone who is covered. 

The deduction for taxpayers making contributions to a Roth IRA is phased out gradually starting at an AGI of $184,000 for married couples filing jointly and $117,000 for singles and heads of households.

Lastly, the AGI limit for the saver’s credit (retirement savings contribution credit) for low and moderate income workers has also increased slightly for 2016. The credit is now $61,500 for married couples filing jointly, $46,125 for heads of household, and $30,750 for singles and married couples who file separately.

If you have any questions about how these adjustments might affect your tax situation, please feel free to contact our office for further assistance.