IRS Tax Rates and Annual Adjustments for 2016

The IRS has released 2016 tax rate schedules and cost-of-living increases for several important tax items.

The IRS has announced annual inflation adjustments for tax year 2016. These include 2016 tax rate schedules and cost-of-living increases for several important tax items. Below are the more significant tax items for taxpayers, including many which changed only slightly or did not change from 2015.

2016 Tax Brackets

The tax brackets for 2016 are shown in the chart below for single taxpayers and married couples filing jointly. Note carefully that these tax brackets take effect on January 1, 2016 and apply to 2016 tax returns which are due in 2017. They do not apply to your 2015 taxes which are due in 2016.

The brackets show modest increases from last year's 2015 rates. For example, in 2016, the 10% bracket applies on income up to $9,275 for singles and $18,550 for married couples—an increase of $50 and $100 respectively. This means that you’ll pay a 10% income tax instead of a 15% tax on that additional amount of income in 2016. A savings of $2.50 for singles and $5 for married couples. On the other end of the income scale, the top tax rate of 39.6% applies to singles whose income in 2016 exceeds $415,051 ($466,951 for married couples), up from $413,200 for singles and $464,850 for married couples in 2015.

Tax Bracket

Income If Single

Income If Married Filing Jointly

10%

Up to $9,275

Up to $18,550

15%

$9,276 to $37,650

$18,551 to $75,300

25%

$37,651 to $91,150

$75,301 to $151,900

28%

$91,151 to $190,150

$151,901 to $231,450

33%

$190,151 to $413,350

$231,451 to $413,350

35%

$413,351 to $415,050

$413,351 to $466,950

39.60%

All over $415,051

All over $466,951

Standard Deduction

The standard deduction amounts for singles and married couples filing jointly are unchanged from 2015: $6,300 for singles, $12,600 for marrieds filing jointly. The standard deduction for heads of households for 2016 has gone up to $9,300, an increase of $50.

Personal Exemption

The personal exemption in 2016 is $4,050, up from $4,000 in 2015. The exemption phases out for individuals with adjusted gross incomes of $259,400 or more ($311,300 for married couples filing jointly); it phases out completely at $381,900 for singles and $433,800 for married couples filing jointly.

Itemized Deductions

The ability to take itemized deductions is phased out for taxpayers whose incomes exceed certain levels. For 2016, these “Pease limitations” begin for individual taxpayers with incomes of $259,400 or more, $311,300 for married couples filing jointly.

AMT

The Alternative Minimum Tax exemption amount for 2016 is $53,900 for singles, and $83,800 for marrieds filing jointly, and begins to phase out at $119,700 ($159,700 for married couples filing jointly).

Earned Income Tax Credit

The maximum earned income credit amount for 2016 is $6,269 for taxpayers filing jointly who have 3 or more qualifying children. There are phase-outs and maximum credit amounts that apply to this credit.

Kiddie Tax

The exemption from the kiddie tax is $2,100 for 2016, unchanged from 2015. A child’s income can be included on a tax return if the child’s income is more than $1,050 and less than $10,500. The amount of unearned income a child can receive without have to pay income tax is $1,050. These amounts are unchanged from 2015.

MSA Deductible Limits

For 2016, Medical Savings Account plans with self-only coverage must have an annual deductible of $2,250 to $3,350. The maximum out-of-pocket expense is $4,450 (unchanged from 2015). For 2016 family coverage plans, the annual deductible must be no less than $4,450 (unchanged from 2015) and no more than $6,700 (up $50 from 2015). For family coverage, the out of pocket expense limit is $8,150 2016, unchanged from 2015.

Lifetime Learning Credit

The adjusted gross income amount used to determine the reduction in the Lifetime Learning Credit for joint filers is $111,000, up from $110,000 in 2015.

Foreign Income Exclusion

The foreign earned income exclusion for 2016 is $101,300, up from $100,800 for 2015.

Estate Tax

Estates of people who die during 2016 will have a basic exclusion amount of $5.45 million, up from $5.43 in 2015. Meanwhile, the annual exclusion for gifts remains at $14,000 for 2016.

Pensions and Retirement Plan Limits

In general, pension plan limits will remain the same for 2016 because cost-of-living increases were so low they didn’t meet certain thresholds that would have triggered statutory adjustments. As a result, the annual contribution limit for employees who participate in 401(k), 403(b), and most 457 retirements plans will remain unchanged at $18,000 for 2016. Also unchanged is the annual limit on IRA contributions which will remain at $5,500 for 2016.

Some limitations that changed in 2016 include the following:

  • For an IRA contributor not covered by a workplace retirement plan but married to someone covered, the deduction is phased out if the couple’s income is between $184,000 and $194,000 (up from $183,000 and $193,000).
  • The AGI phase-out range for contributions to a Roth IRA is $184,000 ($194,000 for married couples filing jointly), up from $183,000 and $193,000, respectively. For singles and heads of household, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000.
  • The AGI limit for the saver’s credit (the retirement savings contribution credit) for low- and moderate-income workers is $61,500 for married couples filing jointly (up from $61,000 in 2015); $46,125 for heads of household (up from $45,750 in 2015); and $30,750 for married individuals filing separately and for singles (up from $30,500 in 2015).