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IRS and SSA Release Inflation-Adjusted Amounts for 2016; Social Security Wage Base and Many Other Amounts Unchanged.

(Parker Tax Publishing October 23, 2015)

The IRS and the Social Security Administration have released annual inflation-adjusted amounts for deductions, credits, phaseouts, and other amounts for 2016. For only the second time since indexing began in 1972, the Social Security wage bases remains unchanged from the previous year. Rev. Proc. 2015-53.

The following is a roundup of the key inflation adjusted tax numbers for 2016 from Rev. Proc. 2015-53 and the Social Security Administration website.

Social Security Wage Base

The maximum wage base for the OASDI (social security) portion of FICA and the Self-Employment Tax for 2016 is $118,500, the same amount as last year (source: Social Security Administration website). Taxable Income Subject to the Maximum Rates The tax rate of 39.6 percent affects singles whose income exceeds $415,050 and married taxpayers filing a joint return whose income exceeds $466,950 (up from $413,200 and $464,850, respectively). The other marginal rates - 10, 15, 25, 28, 33 and 35 percent - and the related income tax thresholds are described in the revenue procedure.

Standard Deduction Amounts

The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly (same as last year). The standard deduction for heads of households rises to $9,300 (up from $9,250). The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of (1) $1,050 (same as last year), or (2) the sum of $350 and the individual's earned income (same as last year).

The additional standard deduction amount for the aged or the blind is $1,250 (same as last year). The additional standard deduction amount is $1,550 (same as last year) if the individual is also unmarried and not a surviving spouse.

Itemized Deduction Limitation

The limitation for itemized deductions to be claimed on tax year 2015 returns of individuals begins with incomes of $259,400 or more ($311,300 for married couples filing jointly).

Personal Exemption and Phaseout Amounts

The personal exemption for tax year 2016 rises to $4,050 (up from $4,000 last year). However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)

Alternative Minimum Tax Exemption

The Alternative Minimum Tax exemption amount for tax year 2016 is $53,900 ($83,800, for married couples filing jointly). The 2015 exemption amount was $53,600 ($83,400 for married couples filing jointly).

Earned Income Credit

The 2016 maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have three or more qualifying children (up from $6,242 last year). The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.

Estate Tax Exclusion

Estates of decedents who die during 2016 have a basic exclusion amount of $5,450,000 (up from $5,430,000 for estates of decedents who died in 2015).

Limit on Employee Contributions to FSAs

The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) is $2,550 (same as last year).

Small Employer Health Insurance Credit

Under the small business health care tax credit, the maximum credit is phased out based on the employer's number of full-time equivalent employees in excess of 10 and the employer's average annual wages in excess of $25,900 for tax year 2015 (up from $25,800).

Gift Tax Exclusions

The annual exclusion for gifts is $14,000 (same as last year). For 2015, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $148,000 (up from $147,000).

Kiddie Tax

The amount used to reduce the net unearned income reported on a child's tax return subject to the kiddie tax, is $1,050 (same as last year).

Foreign Earned Income Exclusion Amount

For 2016, the foreign earned income exclusion rises to $101,300 (up from $100,800 for 2014).

U.S. Savings Bond Interest Exclusion for Higher Education Expenses

The exclusion from income for U.S. savings bond interest for taxpayers who pay qualified higher education expenses, begins to phase out for modified adjusted gross income above $116,300 for joint returns (up from $115,750) and $77,550 (up from $77,200) for other returns. The exclusion is completely phased out for modified adjusted gross income of $146,300 for joint returns and $92,550 for other returns.

Medical Savings Accounts

For purposes of medical savings accounts, a "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,250 (up from $2,200) and not more than $3,350 (up from $3,300), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,450 (same as last year).

For family coverage in tax years beginning in 2016, the term "high deductible health plan" means a health plan that has an annual deductible that is not less than $4,450 (same as last year and not more than $6,700 (up from $6,650), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,150 (same as last year).

Long-Term Care Premiums

The limitations for eligible long-term care premiums includible in the term "medical care" are: for individuals with an attained age of 40 or less before the close of the tax year, $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; and more than 70, $4,870.

Attorney Fee Award Limitation

The attorney fee award limitation is $200 per hour (same as last year).

Child Adoptions

The credit allowed for an adoption of a child with special needs is $13,460. The maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,460. The available adoption credit begins to phase out for taxpayers with modified adjusted gross income in excess of $201,920 and is completely phased out for taxpayers with modified adjusted gross income of $241,920.

Hope Scholarship Credit/Lifetime Learning Credit

The Hope Scholarship Credit is an amount equal to 100 percent of qualified tuition and related expenses not in excess of $2,000 plus 25 percent of those expenses in excess of $2,000, but not in excess of $4,000. Accordingly, the maximum Hope Scholarship Credit is $2,500. A taxpayer's modified adjusted gross income in excess of $80,000 ($160,000 for a joint return) is used to determine the reduction in the amount of the Hope Scholarship Credit otherwise allowable. A taxpayer's modified adjusted gross income in excess of $55,000 ($111,000 for a joint return) is used to determine the reduction in the amount of the Lifetime Learning Credit otherwise allowable.

Qualified Transportation Fringe Benefit

For taxable years beginning in 2014, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $130 (same as last year). The monthly limitation for the fringe benefit exclusion amount for qualified parking is $255 (up from $250). (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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