2016 Tax Provisions for Individuals:
of the tax changes affecting individuals and businesses for
2016 were related to the Protecting Americans from Tax Hikes
Act of 2015 (PATH) that modified or made permanent numerous
tax breaks (the so-called "tax extenders").
To further complicate matters,
some provisions were only extended through 2016 and are set to
expire at the end of this year while others were extended
With that in mind, here's
what individuals and families need to know about tax
provisions for 2016.
The personal and dependent exemption for tax year 2016 is
The standard deduction for married couples filing a joint
return in 2016 is $12,600. For singles and married individuals
filing separately, it is $6,300, and for heads of household
the deduction is $9,300.
The additional standard deduction for blind people and senior
citizens in 2016 is $1,250 for married individuals and $1,550
for singles and heads of household.
In 2016 the top tax rate of 39.6 percent affects individuals
whose income exceeds $415,051 ($466,951 for married taxpayers
filing a joint return). Marginal tax rates for 2016--10, 15,
25, 28, 33 and 35 percent--remain the same as in prior years.
Due to inflation, tax-bracket thresholds increased for every
filing status. For example, the taxable-income threshold
separating the 15 percent bracket from the 25 percent bracket
is $75,300 for a married couple filing a joint return.
and Gift Taxes
In 2016 there is an exemption of $5.45 million per individual
for estate, gift and generation-skipping taxes, with a top tax
rate of 40 percent. The annual exclusion for gifts is $14,000.
Minimum Tax (AMT)
AMT exemption amounts were made permanent and indexed for
inflation retroactive to 2012. In addition, non-refundable
personal credits can now be used against the AMT.
For 2016, exemption amounts are $53,900 for single and head of
household filers, $83,800 for married people filing jointly
and for qualifying widows or widowers, and $41,900 for married
people filing separately.
The basic standard deduction for a married couple filing
jointly in 2016 is $12,600.
and PEP (Personal Exemption Phaseout)
Pease (limitations on itemized deductions) and PEP (personal
exemption phase-out) limitations were made permanent by ATRA
(indexed for inflation) and affect taxpayers with income at or
above $259,400 for single filers and $311,300 for married
filing jointly in tax year 2016.
Spending Accounts (FSA)
Flexible Spending Accounts (FSAs) are limited to $2,550 per
year in 2016 (same as 2015) and apply only to salary reduction
contributions under a health FSA. The term "taxable year" as
it applies to FSAs refers to the plan year of the cafeteria
plan, which is typically the period during which salary
reduction elections are made.
Specifically, in the case of a plan providing a grace period
(which may be up to two months and 15 days), unused salary
reduction contributions to the health FSA for plan years
beginning in 2012 or later that are carried over into the
grace period for that plan year will not count against the
$2,550 limit for the subsequent plan year.
Further, employers may allow people to carry over into the
next calendar year up to $500 in their accounts, but aren't
required to do so.
Term Capital Gains
In 2016 taxpayers in the lower tax brackets (10 and 15
percent) pay zero percent on long-term capital gains. For
taxpayers in the middle four tax brackets the rate is 15
percent and for taxpayers whose income is at or above $415,050
($466,950 married filing jointly), the rate for both capital
gains and dividends is capped at 20 percent.
Individuals - Tax Credits
In 2016 a nonrefundable (i.e. only those with a lax liability
will benefit) credit of up to $13,460 is available for
qualified adoption expenses for each eligible child.
and Dependent Care Credit
The child and dependent care tax credit was permanently
extended for taxable years starting in 2013. If you pay
someone to take care of your dependent (defined as being under
the age of 13 at the end of the tax year or incapable of
self-care) in order to work or look for work, you may qualify
for a credit of up to $1,050 or 35 percent of $3,000 of
For two or more qualifying dependents, you can claim up to 35
percent of $6,000 (or $2,100) of eligible expenses. For higher
income earners the credit percentage is reduced, but not below
20 percent, regardless of the amount of adjusted gross income.
For tax year 2016, the child tax credit is $1,000. A portion
of the credit may be refundable, which means that you can
claim the amount you are owed, even if you have no tax
liability for the year. The credit is phased out for those
with higher incomes.
Income Tax Credit (EITC)
For tax year 2016, the maximum earned income tax credit (EITC)
for low and moderate income workers and working families
increased to $6,269 (up from $6,242 in 2015). The maximum
income limit for the EITC increased to $53,505 (up from
$53,267 in 2015) for married filing jointly. The credit varies
by family size, filing status, and other factors, with the
maximum credit going to joint filers with three or more
Individuals - Education Expenses
Education Savings Account
You can contribute up to $2,000 a year to Coverdell savings
accounts in 2016. These accounts can be used to offset the
cost of elementary and secondary education, as well as
Opportunity Tax Credit
For 2016, the maximum American Opportunity Tax Credit that can
be used to offset certain higher education expenses is $2,500
per student, although it is phased out beginning at $160,000
adjusted gross income for joint filers and $80,000 for other
In 2016, as an employee, you can exclude up to $5,250 of
qualifying post-secondary and graduate education expenses that
are reimbursed by your employer.
A credit of up to $2,000 is available for an unlimited number
of years for certain costs of post-secondary or graduate
courses or courses to acquire or improve your job skills. For
2016, the modified adjusted gross income threshold at which
the lifetime learning credit begins to phase out is $108,000
for joint filers and $54,000 for singles and heads of
In 2016 you can deduct up to $2,500 in student-loan interest
as long as your modified adjusted gross income is less than
$65,000 (single) or $130,000 (married filing jointly). The
deduction is phased out at higher income levels. In addition,
the deduction is claimed as an adjustment to income so you do
not need to itemize your deductions.
Individuals - Retirement
For 2016, the elective deferral (contribution) limit for
employees who participate in 401(k), 403(b), most 457 plans,
and the federal government's Thrift Savings Plan is $18,000
(same as 2015). For persons age 50 or older in 2016, the limit
is $24,000 ($6,000 catch-up contribution). Contribution limits
for SIMPLE plans remain at $12,500 (same as 2015) for persons
under age 50 and $15,500 for anyone age 50 or older in 2016.
The maximum compensation used to determine contributions
increased to $265,000.
In 2016, the adjusted gross income limit for the saver's
credit (also known as the retirement savings contributions
credit) for low-and-moderate-income workers is $61,500 for
married couples filing jointly, $46,125 for heads of
household, and $30,750 for married individuals filing
separately and for singles.
Please call if you need help understanding which deductions
and tax credits you are entitled to.
These are just a few of the strategies & provisions you might take
to reduce your taxes for 2016. Please
contact the office for assistance with implementing these and
other year-end planning strategies that might be suitable to
your particular situation. Help is just a phone call away at
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