The IRS has released new 2016 inflation-adjusted amounts for 2016. These inflation-adjusted figures generally apply to tax years beginning in 2016 or transactions or events occurring in calendar year 2016. Included are the tax rate tables, the beginning income levels for the limitation on certain itemized deductions, and the beginning income levels for the phaseout of personal exemptions and credits. The inflation-adjusted amounts include the following:
Kiddie tax. For purposes of determining whether a child’s unearned income is taxed at the parent’s tax rate under Code Sec. 1(g), the amount by which the child’s net unearned income remains the same for 2016 at $1,050. The child’s income can be reported on the parent’s return if the child’s gross income is more than $1,050, and less than $10,500. The exemption amount for purposes of the alternative minimum tax cannot exceed the sum of the child’s earned income for the tax year, plus $7,400.
Adoption credit. The adoption credit is $13,460. The 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 or more. The amounts of adoption assistance that can be excluded from an employee’s gross income is also $13,460, with the same phaseout as the adoption credit.
Child Tax Credit. The value used to determine the amount of child tax credit under Code Sec. 24 that may be refundable is $3,000.
Education tax credits. The Hope Scholarship Credit under Code Sec. 25A(b)(1), as increased under Code Sec. 25A(i) (the American Opportunity Tax Credit), is 100 percent of qualified tuition and related expenses of up to $2,000, plus 25 percent of excess expenses not above $4,000. Thus, the maximum Hope Scholarship Credit allowable is $2,500. A taxpayer’s modified adjusted gross income (MAGI) above $80,000 ($160,000 for a joint return) is used to determine the reduction under Code Sec. 25A(d)(2) in the amount of Hope Scholarship Credit otherwise allowable. A taxpayer’s MAGI above $55,000 ($111,000 for a joint return) is used to determine the reduction under Code Sec. 25A(d)(2) in the amount of Lifetime Learning Credit otherwise allowable.
Earned Income Tax Credit. In 2016, the maximum EITC is $6,269 for taxpayers with three or more qualifying children, $5,572 for taxpayers with two qualifying children, $3,373 for taxpayers with one qualifying child, and $506 for taxpayers with no qualifying children. The credit amount begins to phase out at an income level of $18,190 ($8,270 for taxpayers with no qualifying children). The credit is not allowed if the aggregate amount of certain investment income exceeds $3,400.
Refundable Credit for Coverage Under a Qualified Health Plan. For taxable years beginning in 2016, the limitation on tax imposed under Code Sec. 36B(f)(2)(B) for excess advance credit payments is determined as follows: If household income (expressed as a percent of the poverty line) is less than 200 percent, the limitation amount for unmarried individuals is $300. The limit for married individuals, surviving spouses and head of household is $600. If household income is 200 percent but less than 300 percent, the limit for unmarried individuals is $750 and for all other taxpayers is $1,500. If household income is 300 percent but less than 400 percent, the limit for unmarried individuals is $1,275 and for all other taxpayers it is $2,550.
Low-Income Housing Credit. The amount used to calculate the 2016 state housing credit ceiling for the low-income housing credit under Code Sec. 42(h)(3)(C)(ii) is the greater of $2.35 multiplied by the state population or $2,690,000.
Employee health insurance expense of small employers. For calendar year 2016, the dollar amount in effect under Code Sec. 45R(d)(3)(B) is $25,900.
Alternative Minimum Tax. The AMT exemption amounts are: $53,900 (single, head-of-household), $41,900 (married filing separately), $83,800 (married filing jointly, surviving spouses) and $23,900 (estates, trusts). The exemption amounts phase out when AMTI exceeds $159,700 (married filing jointly, surviving spouses), $119,700 (single, head-of-household), $79,850 (married filing separately, estates and trusts).
Standard deduction. The standard deduction amounts under Code Sec. 63(c)(2) for 2016 are $12,600 (married filing jointly, surviving spouses), $9,300 (head of household), and $6,300 (unmarried and married filing separately). The standard deduction that can be claimed as a dependent by another taxpayer cannot exceed the greater of $1,050 or the sum of $350 plus the individual’s earned income. The additional standard deduction amount for the aged or blind is $1,250 ($1,550 if the individual is also unmarried and not a surviving spouse).
Limitation on itemized deductions. For 2016, the applicable amounts under Code Sec. 68(b) are $311,300 (married filing jointly, surviving spouses), $285,350 (head of household), $259,400 (unmarried and not a surviving spouse or head of household) and $155,650 (married filing separately).
Cafeteria plans. The dollar limitation under Code Sec. 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $2,550.
Transportation fringe benefit. The monthly limitation under Code Sec. 132(f)(2)(A) regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $130. The monthly limitation under Code Sec. 132(f)(2)(B) regarding the fringe benefit exclusion for qualified parking is $255.
Savings bond education exclusion. The exclusion under Code Sec. 135 for taxpayers who pay qualified higher education expenses begins to phase out for modified adjusted gross income (MAGI) above $116,300 for joint returns and $77,550 for other returns. The exclusion phases out completely at MAGI levels of $146,300 for joint returns and $92,550 for other returns.
Private activity bonds volume cap. The calendar-year 2016 amounts used under Code Sec. 146(d)(1) to calculate the state ceiling for the volume cap for private activity bonds is the greater of (1) $100 multiplied by the state population, or (2) $302,875,000.
Loan limits on agricultural bonds. The 2016 loan limit amount on agricultural bonds under Code Sec. 147(c)(2)(A) for first-time farmers is $520,000.
Personal exemption. The personal exemption is $4,050. The personal exemption phaseout begins when AGI exceeds $259,400 (single), $285,350 (head-of-household), $311,300 (married filing jointly and surviving spouses) and $155,650 (married filing separately). Personal exemptions completely phase out at $381,900 (single), $407,850 (head-of-household), $433,800 (married filing jointly) and $216,900 (married filing separately).
Long-term care premiums. The limitations under Code Sec. 213(d)(10) regarding eligible long-term care premiums includible in the term “medical care” are $390 (attained age of 40 or less before close of tax year), $730 (41-50), $1,460 (51-60), $3,900 (61-70) and $4,870 (over 70).
Medical savings accounts. For tax years beginning in 2016, the term “high deductible health plan” as defined in Code Sec. 220(c)(2)(A) means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,250 and not more than $3,350, 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. For family coverage, the term means a health plan that has an annual deductible that is not less than $4,450 and not more than $6,700, 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.
Interest on education loans. The $2,500 maximum deduction for interest paid on qualified education loans under Code Sec. 221 begins to phase out for taxpayers with modified adjusted gross income in excess of $65,000 ($130,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income of $80,000 or more ($160,000 or more for joint returns).
Low-cost article. For purposes of defining the term “unrelated trade or business” for certain exempt organizations under Code Sec. 513(h)(2), “low cost articles” are those costing $10.60 or less.
Foreign earned income exclusion. The foreign earned income exclusion amount under Code Sec. 911(b)(2)(D)(i) is $101,300.
Gross estate valuation of real property. For an estate of a decedent dying in calendar year 2016, if the executor elects to use the special use valuation method under Code Sec. 2032A for qualified real property, the aggregate decrease in the value of qualified real property resulting from electing to use Code Sec. 2032A for purposes of the estate tax cannot exceed $1,110,000.
Estate and gift taxes. The annual gift tax exclusion from the total amount of taxable gifts made under Code Sec. 2503 remains $14,000.
Notice of large gifts from foreign persons. Code Sec. 6039F authorizes the Treasury Department and the IRS to require recipients of gifts from certain foreign persons to report the gifts when the aggregate value of gifts received in the tax year exceeds $15,671.
Property exempt from levy. The value of property exempt from levy under Code Sec. 6334(a)(2) (fuel, provisions, furniture, other household personal effects, arms for personal use, livestock and poultry) cannot exceed $9,120. The value of property exempt from levy under Code Sec. 6334(a)(3) (books and tools necessary for the trade, business or profession of the taxpayer) cannot exceed $4,560.
Attorney fee award. For fees incurred in calendar year 2016, the attorney fee award limitation under Code Sec. 7430(c)(1)(B)(iii) is $200 per hour.
Periodic payments received under certain contracts. The 2016 dollar amount of the per diem limitation under Code Sec. 7702B(d)(4), regarding periodic payments received under either a qualified long-term care insurance contract or a life insurance contract that are treated as paid by reason of the death of a chronically ill individual, is $340.
These inflation-adjusted figures generally apply to tax years beginning in 2016, except for certain specified figures that apply to transactions or events occurring in calendar year 2016.
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