Wolters Kluwer projects 2016 inflation adjustments

As a service to our subscribers, Wolters Kluwer has prepared projected inflation-adjusted tax brackets for the 2016 Tax Rate Schedules, the standard deduction, personal exemption and other tax amounts for use in year-end and 2016 tax planning. The projected figures are based on the inflation-adjustment provisions of the Internal Revenue Code as currently in force. Those adjustments use the average inflation index for the 12-month period ending on August 31, 2015, published in the Consumer Price Index for All Urban Consumers (CPI-U) by the U.S. Department of Labor on September 16, 2015.

Tax brackets

For 2016, for married taxpayers filing jointly and surviving spouses, the maximum taxable income for the 10-percent bracket is $18,550, (up from $18,450 for 2015); for the 15-percent tax bracket, $75,300 (up from $74,900 for 2015); for the 25-percent tax bracket, $151,900 (up from $151,200 for 2015); for the 28-percent tax bracket, $231,450 (up from $230,450 for 2015); for the 33-percent tax bracket, $413,350 (up from $411,500 for 2015); and for the 35-percent tax bracket, $466,950 (up from $464,850 for 2015). Above the 35-percent threshold, taxpayers will fall within the top 39.6-percent tax bracket.
For heads of household, the maximum taxable income for the 10-percent bracket is $13,250 (up from $13,150 for 2015); for the 15-percent tax bracket, $50,400 (up from $50,200 for 2015); for the 25-percent tax bracket, $130,150 (up from $129,600 for 2015); for the 28-percent tax bracket, $210,800 (up from $209,850 for 2015); for the 33-percent tax bracket, $413,350 (up from $411,500 for 2015); and for the 35-percent tax bracket, $441,000 (up from $439,000 for 2015). Above the 35-percent threshold, taxpayers will fall within the top 39.6-percent tax bracket.

For unmarried, single filers who are not heads of household or surviving spouses, the maximum taxable income for the 10-percent bracket is $9,275 (up from $9,225 for 2015); for the 15-percent tax bracket, $37,650 (up from $37,450 for 2015); for the 25-percent tax bracket, $91,150 (up from $90,750 for 2015); for the 28-percent tax bracket, $190,150 (up from $189,300 for 2015); for the 33-percent tax bracket, $413,350 (up from $411,500 for 2015); and for the 35-percent tax bracket, $415,050 (up from $413,200 for 2015). Above the 35-percent threshold, taxpayers will fall within the top 39.6-percent tax bracket.
For married taxpayers filing separately, the maximum taxable income for the 10-percent bracket is $9,275 (up from $9,225 for 2015); for the 15-percent tax bracket, $37,650 (up from $37,450 for 2015); for the 25-percent tax bracket, $75,950 (up from $75,600 for 2015); for the 28-percent tax bracket, $115,725 (up from $115,225 for 2015); for the 33-percent tax bracket, $206,675 (up from $205,750 for 2015); and for the 35-percent tax bracket, $233,475 (up from $232,425 for 2015). Above the 35-percent threshold, taxpayers will fall within the top 39.6-percent tax bracket.

For estates and trusts, the maximum taxable income for the 15-percent bracket is $2,550 (up from $2,500 for 2015); for the 25-percent tax bracket, $5,950 (up from $5,900 for 2015); for the 28-percent tax bracket, $9,050 (the same as for 2015); and for the 33-percent tax bracket, $12,400 (up from $12,300 for 2015). Above the 33-percent threshold, taxpayers will fall within the top 39.6-percent tax bracket.

Standard deduction

The 2016 standard deduction will remain $6,300 for single taxpayers. For married joint filers, the standard deduction will remain $12,600. For heads of household, however, the standard deduction will be $9,300, up from $9,250 for 2015. The additional standard deduction for blind and aged married taxpayers will remain to $1,250. For unmarried taxpayers who are blind or aged, the amount of the additional standard deduction will also remain the same ($1,550).

For 2016 the so-called “kiddie” deduction used on the returns of children claimed as dependents on their parents’ returns remains $1,050 or $350 plus the individual’s earned income.

Limitation on itemized deductions

For higher-income taxpayers who itemize their deductions, the limitation on itemized deductions will be imposed as follows:

• For married couples filing joint returns or surviving spouses, the income threshold will begin to phase out at income over $311,300, up from $309,900 for 2015.
• For heads of household, the beginning threshold will be $285,350 in 2016, up from $284,050 for 2015.
• For single taxpayers, the beginning threshold will be $259,400, up from $258,250 for 2015.
• For single taxpayers, the beginning threshold will be $259,400, up from $258,250 for 2015.

Personal exemptions

The 2016 personal exemption will increase by $50, to $4,050, up from $4,000 for 2015. The phaseout of the personal exemption for higher income taxpayers will begin after taxpayers pass the same income thresholds set forth for the limitation on itemized deductions.

Wolters Kluwer projects that the phase out of the personal exemption will be complete at the following levels:

• For married couples filing joint returns or surviving spouses, the ceiling threshold will be $433,800, up from $432,400 for 2015.
• For heads of household, the ceiling threshold will be $407,850 in 2016, up from $406,550 for 2015.
• For single taxpayers, the ceiling threshold will be $381,900, up from $380,750 for 2015.
• For married taxpayers filing separate returns, the 2016 ceiling threshold will be $216,900, up from $216,200 for 2015.

Other amounts

Adoption credit. The adoption credit for 2016 increases to $13,460 (up from $13,400 for 2015).

Roth IRA contributions. Contributions to a Roth Individual Retirement Account (IRA) are limited for taxpayers with adjusted gross income above certain limits adjusted annually for inflation. For 2016, the allowed Roth IRA contribution amount phases out for married taxpayers filing jointly with income between $184,000 and $194,000 (up from $183,000 and $193,000 for 2015). For heads of household and unmarried filers, the phaseout range is between $117,000 to $132,000 (up from $116,000 to $131,000 for 2015).

IRA contributions. The maximum amount of deductible contributions that can be made to an IRA will remain at $5,500 for 2016, the same as in 2015. The increased contribution amount for taxpayers age 50 and over will therefore also remain the same, at $6,500.

The above-the-line deduction for traditional IRA contributions will begin to phase out for married joint filers whose income is greater than $98,000 if both spouses are covered by a retirement plan at work (the same as for 2015). If only one spouse is covered by a retirement plan at work, the phaseout begins when modified adjusted gross income reaches $184,000 (up from $183,000 for 2015). The phaseout is complete for these taxpayers at levels of $118,000 and $194,000, respectively.
For heads of household and unmarried filers who are covered by a retirement plan at work, the 2016 income phaseout range for deductible IRA contributions is $61,000 to $71,000, the same as for 2015.

Education savings bond interest exclusion. When U.S. savings bonds are redeemed to pay expenses for higher education, the interest may be excluded from income if the taxpayer’s income is below a certain range. For 2016, the phaseout range for single filers will be from $77,550 to $92,550 (up from $77,200 to $92,200 for 2015). For joint filers the 2016 phaseout range will be $116,300 to $146,300 (up from $115,750 to $145,750 for 2015).

Phaseout of student loan interest deduction. For 2016, the $2,500 student loan interest deduction will begin to phase out for married joint filers with modified adjusted gross income (MAGI) above $130,000 (for married joint filers), the same as for 2015. For single taxpayers, the 2016 deduction will begin to phase out at a MAGI level of over $65,000, which is also the same rate as for 2015. The deduction will be completely phased out for married couples with MAGI above $160,000 ($80,000 for single filers).

Medical savings accounts. The minimum-maximum range for premiums used to determine whether a medical savings account (MSA) is tied to a high-deductible health plan for 2016 will be $2,250-$3,350 for self-only coverage (up from $2,200-$3,300 for 2015) and $4,450-$6,700 for family coverage (up from $4,450-$6,650 for 2015).

Self-only coverage plans are subject to a $4,450 maximum amount for annual out-of-pocket costs. Family coverage plans have a $8,150 annual limit. Both figures are the same as they were for 2015.

Limitation on flexible spending arrangements (FSAs). The limitation on the amount of salary reductions an employee may elect to contribute to a cafeteria plan under an FSA remains $2,550 for 2016.

Foreign earned income/housing. The amount of the 2016 foreign earned income exclusion under Code Sec. 911 will be $101,300, up from $100,800 for 2015. The maximum foreign earned income housing deduction for 2016 will be $30,390, up from $30,240 for 2015.
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