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.