Tax Rates and Parameters, 2016 Year-End Tax Planning Series

November 21, 2016
Karen Ritchie

Tax Rates: The top federal marginal income tax rate of 39.6% (pre-Net Investment Income Tax) is imposed on single filers with Adjusted Gross Income (“AGI”) over $415,050, as well as for married filing joint (“MFJ”) filers with AGI over $466,950. The table below sets forth the 2016 federal individual income tax rates and brackets:

Tax Rate

Single

Married Filing Jointly

Married Filing Separately

Head of Household

10%

$0 to $9,275

$0 to $18,550

$0 to $9,275

$0 to $13,250

15%

$9,276 - $37,650

$18,551 - $75,300

$9,276 - $37,650

$13,251 - $50,400

25%

$37,651 - $91,150

$75,301 - $151,900

$37,651 - $75,950

$50,401 - $130,150

28%

$91,151 - $190,150

$151,901 - $231,450

$75,951 - $115,725

$130,151 - $210,800

33%

$190,151 - $413,350

$231,451 - $413,350

$115,726 - $206,675

$210,801 - $413,350

35%

$413,351 - $415,050

$413,351 - $466,950

$206,676 - $233,475

$413,351 - $441,000

39.6%

Over $415,050

Over $466,950

Over $233,475

Over $441,000


Capital Gains/Qualified Dividend Tax Rates: For taxpayers subject to the 39.6% tax rate referenced above, the tax rate for long-term capital gains and qualified dividends remains unchanged at 20% (short-term capital gains are subject to ordinary income rates). Most investment income (e.g., interest, dividends, rents, royalties and income from passive activities) for higher income taxpayers is also subject to the 3.8% Net Investment Income Tax (“NII Tax”).  Taxpayers that are active in a flow-through business may avoid the 3.8% NII Tax on capital gains on the sale of their business.

Limitations on Personal Exemptions and Itemized Deductions: The 2016 personal exemption and itemized deduction phase-outs impact single filers with AGI in excess of $259,400 and MFJ filers with AGI in excess of $311,300.  High-income taxpayers should pay particular attention to these limitations as itemized deductions can be reduced by up to 80%.  Personal exemptions are subject to reduction as well. 

Payroll Taxes: The social security tax rate is 6.2% on an employee’s first $118,500 of earned income in 2016 (increasing to $127,200 in 2017).  Additionally, single filers with wages or self-employment income over $200,000, as well as MFJ filers with wages or self-employment income over $250,000, are subject to an additional 0.9% Medicare Tax. 

Alternative Minimum Tax: The AMT tax rate is 26% or 28% on alternative minimum taxable income in excess of the exemption amounts.  In 2016, the exemption threshold for single filers is $53,900 and is $83,800 for MFJ filers.

Retirement Plan Contributions: For 2016, taxpayers can contribute up to $18,000 to their individual 401(k), 403(b) or 457(b) plans ($24,000 for taxpayers age 50 or older, although 457(b) participants should check with their plan administrator to confirm that catch-up contributions are allowed), while individual taxpayers with a sufficient amount of earned income can contribute up to $5,500 to their IRA or Roth IRA accounts ($6,500 for taxpayers age 50 or older).  The limitations largely remain unchanged for 2017.  Significantly larger contributions can be made to pension and profit-sharing plans established by year-end.

 Estate Tax and Gift Tax Limitations: For 2016, the estate and gift tax exemption amount increased from $5.43 million to $5.45 million ($5.49 million in 2017). The maximum tax rate for gifts in excess of the annual exclusion and the lifetime credit remains at 40%. 

For Further Information
Karen Ritchie
T: (310) 566-6804
karen.ritchie@hcvt.com
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