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2016 Inflation Adjustments and Other Tax Changes

Carolyn A. Hegge

December 21, 2015

The IRS has announced the annual inflation adjustments for the 2016 tax year as well as other 2016 tax changes resulting from recently passed legislation. The following table gives you a general overview of the 2016 adjustments and changes.  As always, you should consult your own tax advisor for information and advice on how these rates and changes apply to your specific situation.

Gift Tax 2016 2015
Annual gift tax exclusion (per recipient other than a spouse)

 

$14,000

 

$14,000

 

Annual gift tax exclusion for gifts to a spouse who is US citizen

 

Unlimited

 

Unlimited

 

Annual gift tax exclusion for gifts to a spouse who is not a US citizen

 

$148,000

 

$147,000

 

Estate Tax 2016 2015
Federal estate tax exemption amount

 

$5,450,000

 

$5,430,000

 

Maximum federal estate tax rate

 

40%

 

40%

 

IRAs-Roth and Traditional 2016 2015
IRA contribution limit (not to exceed 100% of earned income)

 

$5,500

 

$5,500

 

IRA catch-up contributions (not to exceed to 100% of earned income) for account owners age 50 or older

 

$1,000

 

$1,000

 

Income Limits for Contributing to a Roth IRA 2016 2015
Limitation on ROTH IRA contributions by married couples and surviving spouses filing joint returns

 

Begins at AGI of $184,000

 

Begins at AGI of $183,000

 

Limitation on ROTH IRA contributions by unmarried individuals and heads of households

 

Begins at AGI of $117,000

 

Begins at AGI of $116,000

 

Limitation on ROTH IRA contributions by married individuals filing separate returns

 

Begins at AGI of $-0-

 

Begins at AGI of $-0-

 

Deduction Phase-Out for Traditional IRAs 2016 2015
Married couple filing joint returns where the IRA contributor is covered by a workplace retirement plan

 

AGI between $98,000 and $118,000

 

 AGI between $98,000 and $118,000

 

Married couple filing joint returns where the IRA contributor is not covered by a workplace retirement plan but the spouse is covered

 

AGI between $184,000 and $194,000

 

AGI between $183,000 and $194,000

 

Unmarried individuals and heads of households covered by a workplace retirement plan

 

AGI between $61,000 and $71,000

 

AGI between   $61,000 and $71,000

 

Married individual covered by a workplace retirement plan and filing a separate return

 

AGI between $0 and $10,000

 

AGI between $0 and $10,000

 

401(k), 403(b), Profit-Sharing Plan Limits 2016 2015
Maximum annual compensation amount taken into account when determining employer and employee contributions

 

$265,000

 

$265,000

 

Elective deferrals for traditional and safe harbor 401(k) plans and for 403(b) plans

 

$18,000

 

$18,000

 

Elective deferrals for SIMPLE 401(k) plans

 

$12,500

 

$12,500

 

Catch-up contributions for traditional 401(k) plans, safe harbor 401(k) plans, and 403(b) plans for employees age 50 or older

 

$6,000

 

$6,000

 

Catch-up contributions for SIMPLE 401(k) plans for employees age 50 or older

 

$3,000

 

$3,000

 

Total annual contribution limit for all accounts maintained by one employer (not to exceed 100% of compensation)

 

$53,000 (plus catch-up contributions for employees 50 or older)

 

$53,000 (plus catch-up contributions for employees 50 or older)

 

Income Tax-Standard Deduction 2016 2015
Standard deduction for unmarried individuals and for married individuals filing separately

 

$6,300

 

$6,300

 

Standard deduction for married couples filing joint returns

 

$12,600

 

$12,600

 

Standard deduction for heads of households

 

$9,300

 

$9,250

 

Income Tax-Itemized Deductions 2016 2015
Itemized deduction limitation for unmarried individuals (other than surviving spouses filing joint returns or heads of households)

 

Begins at AGI of $259,400

 

Begins at AGI of $259,400

 

Itemized deduction limitation for married couples and surviving spouses filing joint returns

 

Begins at AGI of $311,300

 

Begins at AGI of $309,900

 

Itemized deduction limitation for heads of households

 

Begins at AGI of $285,350

 

Begins at AGI of $284,050

 

Itemized deduction limitation for married individuals filing separate returns

 

Begins at AGI of $155,650

 

Begins at AGI of $154,950

 

Income Tax-Personal Exemption 2016 2015
Personal exemption amount

 

$4,050

 

$4,000

 

Phase out of personal exemption for unmarried individuals (other than surviving spouses and heads of households)

 

AGI between $259,400 and $381,900

 

AGI between $258,250 and $380,750

 

Phase out of personal exemption for married couples and surviving spouses filing joint returns

 

AGI between $311,300 and $433,800

 

AGI between $309,900 and $432,400

 

Phase out of personal exemption for heads of households

 

AGI between $285,350 and $406,550

 

AGI between $284,050 and $406,550

 

Phase out of personal exemption for married individuals filing separate returns

 

AGI between $155,650 and $216,900

 

AGI between $154,950 and $216,200

 

Employer Sponsored Flex Plans 2016 2015
Annual limit on employee contributions to employer-sponsored healthcare flexible spending arrangements

 

$2,550

 

$2,550

 

Domestic Employees-Social Security and Medicare 2016 2015
Threshold wage amount for withholding Social Security (FICA) and Medicare taxes from cash wages paid to child care, house cleaning, etc. employees who are over 18 and not members of the employer’s immediate family, and threshold wage amount for the employer to be required pay its portion of such taxes

 

$2,000

 

$1,900

 

Social Security Tax to be withheld from each employee’s wages

 

6.2% of the first $118,500 of wages

 

6.2% of the first $118,500 of wages

 

Medicare Tax to be withheld from each employee’s wages

 

1.45% of the first $200,000 wages ($250,000 for joint return and $125,000 for married filing separately)

 

1.45% of the first $200,000 of wages ($250,000 for joint return and $125,000 for married filing separately)

 

Additional Medicare Tax to be withheld from each employee’s wages

 

2.35% of wages in excess of $200,000 ($250,000 for married filing jointly and $125,000 for married filing separately)

 

2.35% of wages in excess of $200,000 ($250,000 for married filing jointly and $125,000 for married filing separately)

 

Employer’s portion of Social Security Tax

 

Amount equal to 6.2% of the first $118,500 of employee’s wages

 

Amount equal to 6.2% of the first $118,500 of employee’s wages

 

Employer’s portion of Medicare Tax

 

Amount equal to 1.45% of employee’s first $200,000 of wages

 

Amount equal to 1.45% of employee’s first $200,000 of wages

 

Employer’s share of Additional Medicare Tax

 

-0-

 

-0-

 

Standard Mileage Rates for Computing Deductible Costs of Operating Automobiles for Business, Medical, Moving and Charitable Purposes

 

2016 2015
Miles driven for business

 

$.54/mile

 

$.575/mile

 

Miles driven for medical or moving purposes

 

$.19/mile

 

$.23/mile

 

Miles driven in service of charitable organizations

 

$.14/mile

 

$.14/mile

 

Sources: IR-2015-137; IR-2015-118; IR-2015-19; Rev. Proc. 2015-53; Notice 2016-1;IR-2015-119; IRS Topic 756; http://www.irs.gov/Retirement-Plans/COLA-Increases-for-Dollar-Limitations-on-Benefits-and-Contributions; https://www.ssa.gov/news/press/factsheets/colafacts2016.html

The information in this article is provided for general informational purposes only and should not be considered tax or legal advice.  You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances. 


If you have any questions about how the information in this article may affect you or your business, please contact Carolyn Hegge at chegge@stroudlaw.com or (608) 257‑2281 or your Stroud attorney.

DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice. This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship. You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.