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IRS Issues Inflation-Adjusted Amounts for 2017
(Parker Tax Publishing November 2016)
The IRS has released annual inflation-adjusted amounts for deductions, credits, phaseouts, and other amounts for tax year 2017. Rev. Proc. 2016-55.
Practice Aid: See Parker Tax ¶360,017 for a Quick Reference guide to the key amounts, limits, and rates for 2017. For key 2017 phaseout ranges, see Parker Tax ¶360,018.
The following is a roundup of the key inflation adjusted tax numbers for 2017 from Rev. Proc. 2016-55.
Taxable Income Subject to the Maximum Rates
The tax rate of 39.6 percent affects singles whose income exceeds $418,400 and married taxpayers filing a joint return whose income exceeds $470,700 (up from $415,050 and $466,950, 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 $6,350 for singles and married persons filing separate returns and $12,700 for married couples filing jointly (up from $6,300 and $12,600, respectively). The standard deduction for heads of households rises to $9,350 (up from $9,300).
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 2017 returns begins with incomes of $261,500 or more for individuals (up from $259,400), and $313,800 or more for married couples filing jointly (up from $311,300).
Personal Exemption and Phaseout Amounts
The personal exemption for tax year 2017 is $4,050 (same as last year). The exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 for individuals, or $313,800 for married couples filing jointly (up from $259,400 and $311,300, respectively). It phases out completely at $384,000 for individuals and at $436,300 for married couples filing jointly (up from $381,900 and $433,800, respectively).
Alternative Minimum Tax Exemption
The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 ($84,500, for married couples filing jointly). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly).
Earned Income Credit
The 2017 maximum earned income credit amount is $6,318 for taxpayers filing jointly who have three or more qualifying children (up from $6,269). The credit is phased out completely for such taxpayers with adjusted gross incomes of $53,930 or more (up from $53,505). The revenue procedure includes a table providing credit amounts and phaseout thresholds for taxpayers with fewer qualifying children, or who use a different filing status.
Estate Tax Exclusion
Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000 (up from $5,450,000 for estates of decedents who died in 2016).
Limit on Employee Contributions to FSAs
The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) is $2,600 (up from $2,550).
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 $26,200 for tax year 2017 (up from $25,900).
Gift Tax Exclusions
The annual exclusion for gifts is $14,000 (same as last year). For 2017, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $149,000 (up from $148,000).
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 2017, the foreign earned income exclusion rises to $102,100 (up from $101,300).
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 $117,250 for joint returns (up from $116,300) and $78,150 (up from $77,550) for all other returns. The exclusion is completely phased out for modified adjusted gross income of $147,250 for joint returns and $93,150 for all other returns (up from $146,300 and $92,550, respectively).
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 (same as last year) and not more than $3,350 (same as last year), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,500 (up from $4,450).
For family coverage in tax years beginning in 2017, the term "high deductible health plan" means a health plan that has an annual deductible that is not less than $4,500 (up from $4,450) and not more than $6,750 (up from $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 $8,250 (up from $8,150).
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, $410; more than 40 but not more than 50, $770; more than 50 but not more than 60, $1,530; more than 60 but not more than 70, $4,090; and more than 70, $5,110.
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 $13,570 (up from $13,460). The maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,570 (up from $13,460). The available adoption credit begins to phase out for taxpayers with modified adjusted gross income in excess of $203,540 and is completely phased out for taxpayers with modified adjusted gross income of $243,540 or more (up from $201,920 and $241,920, respectively).
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.
The Lifetime Learning Credit is an amount equal to 20 percent of qualified tuition and related expenses not in excess of $10,000. Accordingly, the maximum Lifetime Learning Credit is $2,000. A taxpayer's modified adjusted gross income in excess of $56,000 ($112,000 for a joint return) is used to determine the reduction in the amount of the Lifetime Learning Credit otherwise allowable (up from $55,000 and $111,000, respectively).
Qualified Transportation Fringe Benefit
For tax years beginning in 2017, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $255 (same as last year). The monthly limitation for the fringe benefit exclusion amount for qualified parking is $255 (same as last year).
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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