Inflation and cost of living (COLA) adjustments to a lengthy list of Tax Code provisions for 2016 have been released by the IRS. Despite a low rate of inflation during 2015, many provisions will increase for 2016. Some provisions are unchanged because of rounding conventions.
Personal exemptions. Personal and dependency exemptions will increase from $4,000 in 2015 to $4,050 for 2016.
Standard deductions. Standard deductions will remain the same for 2016, with the exception of the standard deduction for heads of household. That increases to $9,300 for 2016, up from $9,250 for 2015.
AMT exemption amounts. For 2016, the alternative minimum tax (AMT) exemption for married joint filers and surviving spouses will be $83,800 (up from $83,400 for 2015). For heads of household and unmarried single filers, the exemption will be $53,900 (up from $53,600 for 2015). For married separate filers, the amount will be $41,900 (up from $41,700 for 2015).
Limitation on itemized deductions. For 2016, the amount of itemized deductions that can be claimed will begin to phase out for certain taxpayers whose income exceeds $311,300 (married joint filers); $285,350 (heads of household); $259,400 (single filers); or $155,650 (married separate filers).
Estate and gift tax. The gift tax annual exemption will remain the same for 2016, at $14,000. However, the estate and gift tax applicable exclusion will increase to $5,450,000 for 2016 from $5,430,000 for 2015.
Saver’s credit. For 2016, the saver’s credit will be available based on maximum AGI limit and filing status as follows: joint filers: $37,000, AGI for a 50-percent credit, $40,000 for a 20-percent credit, and $61,500 for a 10-percent credit; heads of household: $27,750, AGI for a 50-percent credit, $30,000 for a 20-percent credit, and $46,125 for a 10-percent credit; other filers: $18,500 AGI for a 50-percent credit, $20,000 for a 20-percent credit, and $30,750 for a 10-percent credit.
For 2016, the maximum deductible amount under Code Sec. 219(b)(5)(A) for an individual making qualified retirement contributions to IRAs and similar plans will remain $5,500. The allowable IRA deduction will phase out when modified AGI is between $61,000 and $71,000 for single taxpayers who are active participants in an employer-sponsored retirement plan (the same as for 2015). For married couples filing a joint return, where the spouse making the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $98,000 to $118,000 (the same as for 2015). However, for married joint filers where only one spouse is an active participant in an employer-sponsored retirement plan, the income phase out increases to $184,000 through $194,000 for 2016.
Contributions to a Roth Individual Retirement Account (IRA) are limited for taxpayers with adjusted gross income above certain limits adjusted annually for inflation. For 2016, the allowed Roth IRA contribution amount phases out for married taxpayers filing jointly with income between $184,000 and $194,000 (up from $183,000 and $193,000 for 2015). For heads of household and unmarried filers, the phaseout range is between $117,000 to $132,000 (up from $116,000 to $131,000 for 2015).
Catch-up contributions. Eligible individuals age 50 and above may make catch-up contributions to IRAs, 401(k) and other savings arrangements. The catch-up amount for 401(k), 457, 403(b), and SEPs, remains $6,000 for 2016. The IRA catch-up amount remains at $1,000.
Defined contribution plans, defined benefit plans and ESOPs. The limitation for Code Sec. 415(c)(1)(A) defined contribution plans will remain $53,000 for 2016, the same as for 2015. The annual benefit limit under a Code Sec. 415(b)(1)(A) defined benefit plan (the maximum amount a plan may pay a participant each year) remains $210,000 for 2016. The amount for determining the maximum ESOP account subject to a five-year distribution period also remains the same, at $1,070,000 for 2016. The dollar amount used to determine the lengthening period of the five-year distribution remains $210,000 for 2016.
These are just some of the many inflation and COLA adjustments in the Tax Code. Please contact our office for more information.
IR-2015-118, IR-2015-119, Rev. Proc. 2015-53