Important 2016 tax rates have been released

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With 2016 just around the corner, the IRS has released many important rates that will impact your 2016 tax return, retirement plan contribution limits, and payroll taxes. To help you stay aware and up to date, here is a brief summary of the key rates and changes for 2016.

Tax Benefits

2016 will result in some of our tax benefits increasing to follow inflation. Other benefits will remain at the same rates as 2015.

The standard deduction (for those who do not itemize) available to taxpayers on their 2016 tax return will be:

  • Single and Married Filing Separately: $6,300
  • Married filing Jointly: $12,600
  • Head of Household: $9,300

The 2016 personal exemption will be $4,050. Phase outs of this exemption will begin at adjusted gross income of $259,400 ($311,300 for married filing jointly taxpayers). The personal exemption is completely eliminated with income at (or above) $381,900 ($433,800 for married filing jointly taxpayers).

The 2016 Alternative Minimum Tax exemption amount is $53,900 ($83,800 for married filing jointly taxpayers) and starts to phase out at $119,700 ($159,700 for married filing jointly taxpayers) and this exemption is fully phased out with income of $93,150 or higher ($186,300 if you are married filing jointly).

The maximum amount of earned income credit that can be claimed in 2016 is $6,269.

The 2016 foreign earned income inclusion for 2016 is $101,300.

The 2016 estate exclusion amount is $5,450,000. The 2016 annual gift tax exclusion is $14,000.

Monthly Transportation Fringe Benefits for 2016:

  • Transportation: $130
  • Qualified Parking: $255

 

 FICA Taxes

 FICA taxes are imposed on both employees and those self-employed. FICA taxes are made up of two parts: Medicare and Social Security.

The Social security wage base for 2016 will remain at $118,500 (the same wage base as 2015).

2016 Employee FICA taxes will include the following:

  • 6.2% Social Security tax on the first $118,500 of wages (so a maximum of $7,347)
  • 1.45% Medicare tax on the first $200,000 of wages
  • An additional 0.9% Medicare tax on wages over $200,000

2016 Self-Employment FICA taxes will include the following:

  • 12.4% Social Security tax on the first $118,500 of self –employment income (maximum of $14,694).
  • 2.9% Medicare tax on the first $200,000 of self-employment income
  • An additional 0.9% tax on self-employment income over $200,000

2016 Retirement Plan Limitations

As with tax benefits, the IRS has increased some of the retirement plan contribution and catch up contribution amounts for 2016, due to inflation.

Roth IRAs

  • 2016 Adjusted Gross Income phase-out’s for Roth IRA contributions
    • $184,000-$194,000 married filing jointly
    • $117,00-$132,000 for singles and married filing separately

401(k) and 403(b) plans

  • Maximum elective deferral contributions for 401(k) and 403(b) plans is $18,000
  • Catch up contribution limits for employees 50 or older for 401(k) and 403(b) plans will continue to be $6,000

IRAs

  • Maximum annual IRA contributions will continue to be $5,500.
  • The IRA catch up contribution limit for those 50 or older remains $1,000

 

If you would like additional information or to discuss the topics mentioned, please contact Marie Jett, CPA at 317-260-4472 or mjett@greenwaltcpas.com.