Tax Rates and Parameters, 2017 Year-End Tax Planning Series

November 21, 2017
Jessica Fine, Tax Partner and Karen Ritchie, Tax Principal

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 $418,400  married filing joint (“MFJ”) filers with AGI over $470,700. The table below sets forth the 2017 federal individual income tax rates and brackets:

Tax Rate

Single

Married Filing Jointly

Married Filing Separately

Head of Household

10%

$0 - $9,325

$0 - $18,650

$0 - $9,325

$0 - $13,350

15%

$9,326 - $37,950

$18,651 - $75,900

$9,326 - $37,950

$13,351 - $50,800

25%

$37,951 - $91,900

$75,901 - $153,100

$37,951 - $76,550

$50,801 - $131,200

28%

$91,901 - $191,650

$153,101 - $233,350

$76,551 - $116,675

$131,201 - $212,500

33%

$191,651 - $416,700

$233,351 - $416,700

$116,676 - $208,350

$212,501 - $416,700

35%

$416,701 - $418,400

$416,701 - $470,700

$208,351 - $235,350

$416,701 - $444,550

39.6%

Over $418,400

Over $470,700

Over $235,350

Over $444,550

         

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 2017 personal exemption and itemized deduction phase-outs impact single filers with AGI in excess of $261,500 and MFJ filers with AGI in excess of $313,800.  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 $127,200 of earned income in 2017 (increasing to $128,700 in 2018).  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 2017, the exemption threshold for single filers is $54,300 and is $84,500 for MFJ filers.

Retirement Plan Contributions: For 2017, 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). The contribution limits will increase by $500 in 2018. 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).  Significantly larger contributions can be made to pension and profit-sharing plans established by year-end.

Estate Tax and Gift Tax Limitations: For 2017, the estate and gift tax exemption amount increased from $5.45 million to $5.49 million ($5.60 million in 2018). The maximum tax rate for gifts in excess of the annual exclusion and the lifetime credit remains at 40%. 

For Further Information
Jessica Fine
T: 714.361.7612
F: 714.361.7601
Jessica.Fine@hcvt.com
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