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| Pathways Advisory Group, Inc. |
It’s that time of year again! As the joy of the holiday season comes to an end, you now turn to the joy of tax season – preparing the returns for 2016 and looking at what 2017 brings us. Much of the news and excitement over the course of the new year will likely center around what the new Trump Administration will change regarding tax laws, and we’ll be sure to keep you updated throughout the year. As we take note of a few things to keep an eye on, it’s also important to keep the focus on what we know will happen. Here’s a summary of what is currently in place for 2017.
Tax Brackets: The 2017 income brackets increased slightly with inflation. However, this area of planning is one of many to keep watch on, as Mr. Trump has been quite vocal on making changes to the tax brackets. See below for the 2017 brackets for Married Filing Joint Taxpayers and Single Taxpayers:
Married Individuals Filing Joint Returns and Surviving Spouses
Individual Taxpayers
Source: Forbes.com Click here for a complete version of the 2017 Tax Tables.Itemized Deductions and Personal Exemptions: Most taxpayers benefit from a Personal Exemption (remaining the same in 2017 – $4050) for the filer and each dependent, and Itemized Deductions (on Schedule A). However, both are subject to reductions if AGI is over $261,500 for Single Taxpayers and $313,800 for Married Joint Taxpayers, phasing out completely at $384,000 and $436,300 respectively.
Standard Deductions: If you’re using the standard deduction, here’s some good news: your standard deduction will increase! Individual filers will receive a standard deduction of $6,350, up $50 from 2016. Married couples filing jointly will get a $100 bump to $12,700 in 2017. Those age 65 and over get an additional $250 for the standard deduction. While not a tremendous amount, anything to lower your tax liability is a good thing.
Qualified Dividends and Capital Gain Tax Rates: Qualified dividends and capital gains rates remain the same in 2017 – 0% tax rate for taxpayers in the 10% and 15% marginal tax brackets, 15% for taxpayers in the 25, 28, 33, and 35% tax brackets, and 20% for those in the 39.6% bracket.
Personal Health Insurance: The individual mandate fine for going without insurance remains the same in 2017. This is also on Trump Watch, as he’s said much about changing the current healthcare law, though what that will look like exactly, and when, is unknown. The tax is the greater of two amounts: The basic fine ($695 per person, and $347.50 for each family member under 18 – maximum $2,085), or an income based levy (2.5% of the household income over the tax return filing threshold – also with a maximum).
Roth IRA Contributions: The maximum Roth IRA contribution remains at $5500 ($6500 for those who attain age 50 or older during 2017). The Adjusted Gross Income (AGI) limit that disallows all direct contributions increased with inflation to $196,000 for Married Joint Taxpayers and $133,000 for Single Taxpayers. Contributions begin to phase out at AGI of $186,000 for Married Joint Taxpayers and $118,000 for Single Taxpayers.
Retirement Account Contribution: The maximum 401(k), 403(b) and 457(Deferred Compensation) contribution remains at $18,000 in 2017 ($24,000 for those who attain age 50 or older during the year).
Estate Tax Exemption: The Estate Tax Exemption increased from $5.45 million in 2016 to $5.49 million in 2017, making the total exemption for a married couple $10.98 million. The tax rate for amounts exceeding the exemption remains 40%. This is also on Trump Watch, as Mr. Trump has clearly stated he wants to repeal and replace the federal estate tax.
Gift Tax Exemption: The annual gift tax exemption (amount that can be gifted without requiring a gift tax filing) remains $14,000 per person.
Social Security Benefits: Social Security and Supplemental Security Income (SSI) Benefits will receive a 0.3% cost-of-living-adjustment (COLA) this year. While exciting, Medicare also has a surprise . . .
Medicare Premiums: We again see an increase in the standard premium for Medicare Part B. For married filing jointly at $170,000 income or less ($85,000 single), it increases from $121.80 in 2016 to $134 per month and moves up depending on income. If you are a new enrollee in 2017 or do not have the premium deducted from your Social Security check, you will pay the full standard premium. However, if you are already receiving Social Security benefits and had at least one premium payment deducted in 2016, you’ll be “held harmless” from the full premium increase. Instead, you’ll pay an increased amount based on the Social Security COLA you were excited to read about above – 0.3%, making the average Part B monthly premium $109.
Social Security Payroll Taxes: The Social Security wage base, upon which payroll taxes are due, increases to $127,200 this year and the FICA tax rate (paid on income up to the wage base) remain unchanged at 6.2% for both employer and employee (12.4% if you’re self-employed).
Medicare Tax: The Medicare tax rate remains at 1.45% (2.9% for Self Employed) for Married Joint Taxpayers with earned income below $250,000 ($200,000 for Single Taxpayers). For earned income above these thresholds, the Medicare tax rate increases to 2.35% (3.8% for Self Employed) on those wages above the threshold.
The above explanation is summarized. It is not all inclusive. Please confirm all specifics with your tax professional.
Follow our blog for major updates throughout the year from the Trump administration, and we wish you a prosperous 2017 and happy filing!
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