Welcome, 2017! The Internal Revenue Service (IRS) has announced the annual inflation adjustments for a number of provisions for this year, including tax rate schedules, tax tables, and cost-of-living adjustments for certain tax items, according to Forbes. Included below are the most relevant changes in the IRS that will be in effect on January 1, 2017. Note—these are not the numbers and tax rates to use when preparing 2016 tax returns.
The U.S. Tax Code has required that federal income tax brackets be adjusted for inflation annually since the late 1980s. Inflation-adjusted tax figures are also subject to change with tax laws made by Congress over the next year. Here are the changes in the numbers for 2017:
● For single taxpayers and married individuals filing separately, the standard deduction rises from $6,300 to $6,350. For married couples filing jointly, the standard deduction rises from $12,600 to $12,700. And for heads of the households, the standard deduction will rise from $9,300 to $9,350.
● The personal exemption remains at $4,050. The exemption is subject to a phase-out that begins with adjusted gross incomes of $262,500 ($313,800 for married couples filing jointly) and phases out completely at $384,000 ($436,300 for married couples filing jointly).
● Single taxpayers have a 39.6% tax rate if their income exceeds $418,400, which is up from $415,050 in 2016 ($470,700 for married couples filing jointly, up from $466,950 in 2016). Other marginal rates–10%, 15%, 25%, 28%, 33%, and 35%–and the related income tax thresholds for 2017 are outlined in the revenue procedure.
● The limitation for itemized deductions to be claimed on tax returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).
● The Alternative Minimum Tax exemption amount is up from $53,900 to $54,300 and begins to phase out at $120,700 (up from $83,800 to $84,500 for married couples filing jointly and begins to phase out at $160,900). The 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).
● Maximum Earned Income Credit amount is up from $6,269 to $6,318 for taxpayers filing jointly who have 3 or more qualifying children. The revenue procedure has a table providing maximum credit amounts for income thresholds, phaseouts, and other categories.
● The monthly limitation for the qualified transportation and parking fringe benefit is $255.
● The dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695.
● For self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250 and no more than $3,350 (unchanged from 2016). The maximum out of pocket expense for self-only coverage is up from $4,450 to $4,500. For family coverage, the floor for the annual deductible is up from $4,450 $4,500, however the deductible cannot be more than $6,750. For family coverage, the out of pocket expense limit is up from $8,150 to $8,250.
● The floor for medical expenses is 10% of adjusted gross income for all taxpayers. Taxpayers over the age of 65 can no longer use the 7.5% floor in 2017.
● The adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is up from $111,000 to $112,000.
● The Foreign Earned Income exclusion is up from $101,300 to $102,100.
● Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 in 2016.
In addition to all these changes, the Internal Revenue Service and the Treasury Department have proposed new rules for withholding and reporting on gambling winnings from pari-mutuel betting (such as horse races, dog races, or jai alai) and finalized regulations for reporting on bingo, keno, and slot machine winnings. “The amount of the wager” will no longer just be the winning base unit. It will now include the entire amount bet in a specific pari-mutuel pool by an individual. This only applies if all onsite wagers made into a certain pool by an individual are made on a single totalizator ticket. These changes will have the same results for Advance Deposit Wagering customers and not affect how the wagers are made.
A new Federal Tax Law may affect some returns filed in early 2017. According to the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), the IRS is required to hold refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15. This begins on January 1, 2017 and gives taxpayers additional time to help prevent revenue loss due to identity theft and refund fraud related to fabricated wages and withholdings.
All of these changes are made to ensure taxpayers receive the refund they are owed. “The IRS and the nation's tax community are committed to making this another smooth filing season," says IRS Commissioner John Koskinen. The tax filing season opens on January 23 and returns are due by April 18, 2017.
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