Broker Check

January 29, 2016


The following tax rates and amounts are effective for 2016:

  1. OASDI rate for employees remains at 6.2%.  The wage base remains the same at $118,500.
  2. Medicare rate remains at 1.45% for employers.  The employee portion is 1.45%, and a 0.9% Medicare surtax on earned income will be calculated on single filers with wages over $200,000 and married filers with wages over $250,000 as part of health care reform.
  3. There isn’t a cost of living hike for Social Security beneficiaries this year.  The maximum earnings one can earn before Social Security benefits will start to be withheld is $41,880 for those under age 66.  Those between age 62 and age 66 can earn $15,720.  For each $2 earned above that, $1 of benefits is lost.  There is no limit on earnings for those older than 66.  The retirement age for social security continues to rise this year.  Those turning 62 this year are affected.  They will get reduced benefits if they start receiving payments before they attain age 66. 
  4. Personal exemptions rise $50 to $4,050.  Personal exemptions will phase out for filers with higher incomes.
  5. Standard deduction remains the same at $12,600 plus $1,250 for each spouse 65 or older.  For children age 14 who must file returns, it remains the same at $1,050.  Head of household’s standard deduction increases to $9,300.
  6. Income tax rates will be 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% for single taxpayers earning over $415,050 or married taxpayers earning over $466,950.  The 20% top rate for long term capital gains and qualified dividend starts at a higher level for 2016; singles with taxable income over $415,050 and joint filers above $466,950.  For those earning less than the thresholds, the tax rate has remained at 15%.  Under the 2010 health care law, the new 3.8% Medicare net investment income tax remains effective for single taxpayers earning more than $200,000 and married taxpayers earning more than $250,000. 
  7. Alternative Minimum Tax rate remains at 26% on the first $186,300 of income for marrieds and 28% over that.  Exemptions from the minimum tax will rise in 2016 to $83,800 for couples and $53,900 for singles.
  8. Back up withholding rate remains at 28%.
  9. 401(k), 403(b), and 457 contribution pay-in limitation remains at $18,000, with $6,000 additional for employees 50 and older.  Ceiling on SIMPLE plans stays at $12,500 but folks age 50 or older can put in an additional $3,000 in 2016.
  10. Maximum level of pay on which pay-ins to plans can be based upon remains at $265,000 with the maximum pay-in for defined contribution plans remaining at $53,000.  Percentage of compensation that can be put in remains at 100%.  Profit Sharing percentage remains at 25%.  Benefit remains unchanged at $210,000.
  11. Business meal and entertainment deductibility remains at 50%.  
  12. Federal estate and gift tax exemption increases to $5,450,000 from $5,430,000.  The maximum Estate and Gift rate remains at 40%.  
  13. Maximum amount of equipment eligible for expense election for small businesses is $500,000.  50% bonus depreciation is available through 2017 and then falls to 40% in 2018 and 30% in 2019, before expiring.
  14. Phaseout for Traditional IRA deductions start at $98,000 and ends at $118,000 for couples.  Phaseout for singles is from $61,000 to $71,000.  If only one spouse is covered by a plan, the phaseout zone for deducting a payin for the spouse who is not covered begins at $184,000 of AGI and ends at $194,000.  Phaseout for Roth IRA deductions start at $184,000 for couples and end at $194,000, and start at $117,000 and end at $132,000 for singles.  Contribution limit remains at $5,500.  If 50 or older, can contribute up to $6,500.
  15. The interest exclusion on U.S. Savings Bonds redeemed to pay qualified higher education expenses starts to phase out at AGI above $116,300 for marrieds.
  16. Eligible portion of long term care premium rises to $4,870 for those age 71 and older, $3,900 between ages 60 and 70, $1,460 between ages 50 and 60, $730 from 41 to 50 and $380 for age 40 and under, deductible as medical expenses.  Limit for tax-free payouts remains at $330 per day.
  17. Medicare Part B premium remains at $104.90 monthly for most singles with AGI under $85,000, maximum premium rate is $340.90 per month.
  18. The Nanny tax threshold rises to $2,000.  No social security tax is due for domestics paid $2,000 or less this year.  It is not indexed for inflation.  FUTA is due whenever a domestic employee is paid $1,000 or more in a calendar quarter in the current or prior year.
  19. The exemption from the Kiddie Tax for 2016 remains at $2,100.  A parent will be able to elect to include a child’s income on the parent’s return for 2016 if the child’s income is more than $1,050 and less than $8,500 and the child needs to be less than 20.  If earned income of child is less than ½ the support, age rises to 24.  If Kiddie Tax applies, a child’s earned income over $2,100 is taxed at the parents’ marginal rate.
  20. Low and middle income savers can still get a tax credit of up to $1,000 for contributions made to IRAs and qualified plans.  Credit disappears for marrieds when AGI hits $61,500, $30,750 for singles.
  21. Adoption tax credit increased to $13,460 of expenses, from $13,400.  Phaseout starts at $201,920 AGI.
  22. The Lifetime Learning credit phaseout for MFJ starts at $111,000, $55,000 for singles.  
  23. Gift tax exclusion remains at $14,000 per donee for gifts made in 2016.
  24. The limit on deducting payins to Health Savings Accounts rises to $6,750 for family coverage and $3,350 for individual coverage.  Account owners born before 1960 can put in an additional $1,000.  Ceiling on out of pocket cost rises to $13,100 for family coverage and $6,550 for individual coverage.  HSAs can be rolled into IRAs.
  25. Bonus rate or flat rate withholding for supplemented wages less than $1,000,000 remains at 25%.  If more than $1,000,000 the rate remains at 39.6%.
  26. Monthly limitation on tax-free parking increases to $255 and the cap on transit passes and commuter vans now matches that amount.
  27. Companies can deduct 9% of income from U.S. production activities.  U.S. production activities in Puerto Rico are eligible for the deduction for tax years beginning before January 1, 2017.
  28. U.S. taxpayers working abroad have a higher exclusion, $101,300, up from $100,800.
  29. Federal minimum wage remains unchanged at $7.25, food service employees, $2.13.  New Jersey is $8.38 and New York Minimum wage is $9.00.  Different rates apply for the New York hospitality industry.  Connecticut minimum wage is $9.60, tipped employees $5.78.  Pennsylvania minimum wage is $7.25 with tipped employees $2.83. 
  30. Credit and Debit Card companies will continue to issue 1099s on payments made to merchants in 2016.  Third party networks such as Paypal will issue 1099s to payees with over 200 sales transactions and more than $20,000 in sales income.
  31. S Corporations and partnerships will continue to owe a penalty of $195 per owner or partner per month for up to 12 months for failure to file on time.
  32. High income taxpayers can continue to convert their IRAs to ROTHs.  The $100,000 AGI cap is gone.
  33. Nearly all businesses must wire tax deposits to the IRS.
  34. Standard mileage allowance for business decreases to 54.0¢ per mile.  The rate decreases to 19.0¢ a mile for medical purposes and job related moves.  Remains at 14¢ per mile for charitable driving.
  35. Mandatory health care payments under the Patient Protection and Affordable Care Act (Obamacare) are effective after 12/31/13.  The tax for being uninsured is the higher of two amounts; $695 a person and $347.50 per family member under 18 years of age with a ceiling of $2,085 per family or an income based penalty of 2.5% of the excess of the household AGI over the tax return filing threshold.
  36. Tax-free direct payouts from IRAs to charity of up to $100,000 for individuals age 70½ and older have been made permanent.
  37. Beginning in 2016, professional development costs are deductible as part of the $250 of teacher classroom supplies deduction.

           As always, if you have any questions about these or any other matters, do not hesitate to call us.

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