Inflation-adjusted tax brackets for the 2017 tax year, based on the average inflation index for the 12-month period ending on August 31, 2016, show a slight uptick for the year ahead, according to Wolters Kluwer’s George Jones.
“Dollar wise, the inflation adjustments yield significantly greater amounts if you’re beginning with a larger sum,” Jones observed. “For example, if you start with the top 39.6 percent bracket, and on joint returns, next year that bracket will begin at $470,700. This year it’s $466,950, so that’s a little more than a $3,000 difference. Compare that to someone at the 15 percent bracket. It begins at $18,650 for next year, and this year its 18,551, which is significantly less than at the 39.6 percent bracket.”
“Then of course when the dollar sums are even larger, the inflation adjustments are more substantial,” he said. “For example, the unified estate tax jumps from $5,450,000 this year to $5,490,000 next year, which is $40,000 higher—a significant increase.”
Since the late 1980s, the Tax Code has required that federal income tax brackets be adjusted for inflation annually, and inflation adjustments have been inserted into the Code with increasing frequency. The Code now requires over 50 inflation-driven computations to determine deduction, exemption and exclusion amounts in addition to the 40 separate computations needed to inflation-adjust the tax bracket schedules each year. Estimates for any of the inflation-adjusted tax figures for 2017, of course, are also necessarily subject to any changes to the tax law that may be made by Congress over the course of the next year.
For 2017, for married taxpayers filing jointly and surviving spouses, the maximum taxable income for the 10-percent bracket is $18,650, up from $18,550 for 2016; for the 15 percent bracket, $75,900, up from $75,300 for 2016; for the 25 percent bracket, $153,100, up from $151,900 for 2016; for the 28 percent bracket, $233,350, up from $231,450 for 2016; for the 33 percent bracket, $416,700, up from $413,350 for 2016; and for the 35 percent tax bracket, $470,700, up from $466,950 for 2016. Above that 35 percent maximum amount, taxpayers will fall into the top 39.6 percent tax bracket. In addition to Wolters Kluwer, Thomson Reuters and Bloomberg BNA have also released their projections (see
For heads of household, the maximum taxable income for the 10 percent bracket is $13,350 (up from $13,250 for 2016); for the 15 percent tax bracket, $50,800 (up from $50,400 for 2016); for the 25 percent tax bracket, $131,201 (up from $130,150 for 2016); for the 28 percent tax bracket, $212,500 (up from $210,800 for 2016); for the 33 percent tax bracket, $416,700 (up from $413,350 for 2016); and for the 35 percent tax bracket, $446,700 (up from $441,000 for 2016). Above that 35 percent maximum income amount, taxpayers will fall within the top 39.6 percent tax bracket.
For unmarried, single filers who are not heads of household or surviving spouses, the maximum taxable income for the 10 percent bracket is $9,325 (up from $9,275 for 2016); for the 15 percent tax bracket, $37,950 (up from $37,650 for 2016); for the 25 percent tax bracket, $91,900 (up from $91,150 for 2016); for the 28 percent tax bracket, $191,650 (up from $190,150 for 2016); for the 33 percent tax bracket, $416,700 (up from $413,350 for 2016); and for the 35-percent tax bracket, $416,700 (up from $415,050 for 2016). Above that 35 percent maximum income amount, taxpayers will fall within the top 39.6 percent tax bracket.
For married taxpayers filing separately, the maximum taxable income for the 10 percent bracket is $9,325 (up from $9,275 for 2016); for the 15 percent tax bracket, $37,950 (up from $37,650 for 2016); for the 25 percent tax bracket, $76,550 (up from $75,950 for 2016); for the 28 percent tax bracket, $116,675 (up from $115,725 for 2016); for the 33 percent tax bracket, $208,350 (up from $206,675 for 2016); and for the 35 percent tax bracket, $235,350 (up from $233,475 for 2016). Above that 35 percent maximum income amount, taxpayers will fall within the top 39.6 percent tax bracket.
For estates and trusts, the maximum taxable income for the 15 percent bracket is $2,550 (the same as for 2016); for the 25 percent tax bracket, $6,000 (up from $5,950 for 2016); for the 28 percent tax bracket, $9,150 (the same as for 2016); and for the 33 percent tax bracket, $12,500 (up from $12,400 for 2016). Above that 35 percent maximum income amount, taxpayers will fall within the top 39.6-percent tax bracket.
Standard Deduction
The 2017 standard deduction is expected to rise $50, to $6,350 for single taxpayers, according to Wolters Kluwer estimates. For married joint filers, the standard deduction is expected to rise $100, to $12,700. For heads of household, the standard deduction will rise to $9,350, up from $9,300 for 2016. The additional standard deduction for blind and aged married taxpayers will remain at $1,250. For unmarried taxpayers who are blind or aged, the amount of the additional standard deduction will also remain the same ($1,550).
For 2017 the so-called "kiddie" deduction used on the returns of children claimed as dependents on their parents’ returns remains $1,050 or $350 plus the individual’s earned income.
Limitation on Itemized Deductions
For higher-income taxpayers who itemize their deductions, the limitation on itemized deductions is expected to be imposed as follows:
• For married couples filing joint returns or surviving spouses, the income threshold will begin to phase out at income over $313,800, up from $311,300 for 2016.
• For heads of household, the beginning threshold will be $287,650 in 2016, up from $285,350 for 2016.
• For single taxpayers, the beginning threshold will be $261,500, up from $259,400 for 2016.
• For married taxpayers filing separate returns, the 2016 threshold will be $156,900, up from $155,650 for 2016.
Personal Exemptions
The personal exemption will be $4,050 for 2017, the same as for 2016. The phaseout of the personal exemption for higher-income taxpayers will begin after taxpayers pass the same income thresholds set forth for the limitation on itemized deductions.
Wolters Kluwer projects that the phase-out of the personal exemption will be complete at the following levels:
• For married couples filing joint returns or surviving spouses, the ceiling threshold will be $436,300, up from $433,800 for 2016.
• For heads of household, the ceiling threshold will be $410,150 in 2016, up from $407,850 for 2016.
• For single taxpayers, the ceiling threshold will be $384,000, up from $381,900 for 2016.
• For married taxpayers filing separate returns, the 2017 ceiling threshold will be $218,150, up from $216,900 for 2016.
Estate and Gift Tax
Gift Tax: The 2017 gift tax annual exemption is expected to remain the same as for 2016, at $14,000.
Estate Tax: The estate and gift tax applicable exclusion is predicted to increase from $5,450,000 in 2016 to $5,490,000 in 2017.
Gifts to Noncitizen Spouses: The first $149,000 of gifts made in 2017 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $1,000 from $148,000 for 2016.
AMT Exemptions
The American Taxpayer Relief Act of 2012 (ATRA) (P.L. 112-240) provided for the annual inflation adjustment of the exemption from alternative minimum tax (AMT) income. Previously, this inflation adjustment had to be enacted by Congress each year. Wolters Kluwer projects that, for 2017, the AMT exemption for married joint filers and surviving spouses will be $84,500 (up from $83,800 for 2016). For heads of household and unmarried single filers, the exemption will be $54,300 (up from $53,900 for 2016). For married separate filers, the exemption will be $42,250 (up from $41,900 for 2016). For estates and trusts, the exemption will be $24,100 (up from $23,900 for 2016).
For a child to whom the so-called "kiddie tax" under Code Sec. 1(g) applies, the exemption amount for AMT purposes may not exceed the lesser of: (1) the sum of the child’s earned income for the tax year, plus $7,500 (up from $7,400 for 2016) or (2) $54,300 (up $400 from 2016).
Other Amounts
Adoption Credit: The adoption credit for 2017 is expected to increase to $13,570 (up from $13,460 for 2016).
Roth IRA Contributions: Contributions to a Roth Individual Retirement Account (IRA) are limited for taxpayers with adjusted gross income above certain limits that are adjusted annually for inflation. For 2017, the allowed Roth IRA contribution amount is expected to phase out for married taxpayers filing jointly with income between $186,000 and $196,000 (up from $184,000 and $194,000 for 2016). For heads of household and unmarried filers, the phaseout range will be between $118,000 and $133,000 (up from $117,000 to $132,000 for 2016).
IRA Contributions: The maximum amount of deductible contributions that can be made to an IRA will remain at $5,500 for 2017, the same as in 2016, according to Wolters Kluwer. The increased contribution amount for taxpayers age 50 and over will, therefore, also remain the same, at $6,500.
The above-the-line deduction for traditional IRA contributions will begin to phase out for married joint filers whose income is greater than $99,000 if both spouses are covered by a retirement plan at work ($1,000 more than for 2016), according to Wolters Kluwer. If only one spouse is covered by a retirement plan at work, the phaseout begins when modified adjusted gross income reaches $186,000 (up from $184,000 for 2016). For heads of household and unmarried filers who are covered by a retirement plan at work, the 2017 income phaseout range for deductible IRA contributions will be $62,000 to $72,000, up $1,000 from 2016.
Education Savings Bond Interest Exclusion: When U.S. savings bonds are redeemed to pay expenses for higher education, the interest may be excluded from income if the taxpayer’s income is below a certain range. For 2017, the phaseout range for single filers will be from $78,150 to $93,150 (up from $77,550 to $92,550 for 2016), Wolters Kluwer predicts. For joint filers, the 2017 phaseout range will be $117,250 to $147,250 (up from $116,300 to $146,300 for 2016).
Phaseout of Student Loan Interest Deduction: For 2017, the $2,500 student loan interest deduction will begin to phase out for married joint filers with modified adjusted gross income (MAGI) above $135,000, up $5,000 from 2016. For single taxpayers, the 2017 deduction will begin to phase out at a MAGI level of over $65,000, which is the level for 2016.
Limitation on Flexible Spending Arrangements (FSAs): The limitation on the amount of salary reductions an employee may elect to contribute to a cafeteria plan under an FSA will rise to $2,600 for 2017, up from $2,550 for 2016.
Foreign Earned Income/Housing: The amount of the 2017 foreign earned income exclusion under Code Sec. 911 will be $102,100, up from $101,300 for 2016, Wolters Kluwer predicts. The maximum foreign earned income housing deduction for 2017 will be $30,630, up from $30,390 for 2016.
