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| Pathways Advisory Group, Inc. Leslie Dermon, Paraplanner |
It’s that time of year again. Here is a summary of some key 2016 provisions and updated brackets:
Tax Brackets: 2016 income tax brackets changed with inflation. See below for the 2016 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 2016 Tax Tables.
Itemized Deductions and Personal Exemptions: Most taxpayers benefit from a Personal Exemption (increased to $4050 in 2016) for the filer and each dependent, and Itemized Deductions (on Schedule A). However, both are subject to reductions if AGI is over $259,400 for Single Taxpayers, and $311,300 for Married Joint Taxpayers.
Qualified Dividends and Capital Gain Tax Rates: Qualified dividends and capital gains rates remain the same in 2016: 0% for taxpayers in the 10% and 15% marginal tax brackets, 15% for taxpayers in the 25, 28, 33, 35% tax brackets, and 20% for those in the 39.6% bracket.
Personal Insurance: The individual mandate fine for going without insurance did increase in 2016. The tax is typically the greater of two amounts: The basic fine (rises from $325 in 2015 to $695 per person, and $162.50 for each family member under 18 in 2015 to $347.50 in 2016), or an income based levy (rises from 2% in 2015 to 2.5% in 2016 of the household income over the tax return filing threshold).
Roth IRA Contributions: The maximum Roth IRA contribution remains at $5500 ($6500 for those who attain age 50 or older during 2016). The Adjusted Gross Income (AGI) limit that disallows contributions increased with inflation to $194,000 for Married Joint Taxpayers and $132,000 for Single Taxpayers. Contributions begin to phase out at AGI of $184,000 for Married Joint Taxpayers and $117,000 for Single Taxpayers.
Retirement Account Contribution: The maximum 401(k), 403(b) and 457(Deferred Compensation) contribution remains $18,000 in 2016 ($24,000 for those who attain age 50 or older during the year).
Estate Tax Exemption: The Estate Tax Exemption also increased from $5.43 million in 2015 to $5.45 million in 2016. The tax rate for amounts exceeding the exemption remains 40%.
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 Benefits did not receive a cost-of-living-adjustment (COLA) this year. Benefit amounts will remain unchanged.
Medicare premiums: Similar to last year, taxpayers have to fall below a Modified Adjusted Gross Income (MAGI) of $170,000 ($85,000 for Single Taxpayers) to pay the standard monthly Medicare Part B premium of $104.90. However, the Bipartisan Budget Act of 2015 increased the amount to $121.80 per month for new enrollees (in 2016) and recipients that do not have premiums deducted from monthly Social Security benefits.
Social Security Payroll Taxes: The Social Security wage base, upon which payroll taxes are due, remains at $118,500 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.
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).
529 College Savings Plan: Under new rules, qualified higher education expenses will now include computer equipment and related expenses such as computer software and internet access. Additionally, if a 529 Plan distribution is used to pay for college tuition that is later refunded (no longer qualifies for the tax-free treatment), new rules allow you to return the 529 funds within 60 days.
Qualified Charitable Distributions (QCD): Now a permanent law, taxpayers age 70 ½ or older are permitted to make a Qualified Charitable Distribution (QCD) up to $100,000 directly from an IRA to a charity. The contribution is not tax deductible, but the distribution from the IRA is non-taxable. The QCD counts towards the taxpayer’s Required Minimum Distribution (RMD) for the year.
The above explanation is summarized. It is not all inclusive. Please confirm all specifics with your tax professional.
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