United States: Summary of key 2016 and 2017 federal tax rates and ... - PwC

Insights from Global Mobility

United States: Summary of key 2016 and 2017 federal tax rates and limits

March 3, 2017

In brief

The following is a high-level summary of some key individual tax rates and applicable limits for 2016 and 2017. For purposes of this Insight, the reference to '$' means US dollars. Further:

MFJ means married filing jointly MFS means married filing separately HOH means head of household. This compilation is intended to serve as a handy reference guide for companies with globally mobile workforces as they prepare for US individual tax filings relating to 2016, as well as planning for 2017. It is critical to note that US tax reform and the potential repeal of the Affordable Care Act (ACA) is likely to change individual tax rates; however, the changes may not become effective until January of 2018.

In detail

FICA taxes

2016

2017

Social Security (SS) wage base

$118,500

$127,200

SS maximum - 6.2%

$7,347.00

$7,886.40

Medicare - 1.45%*

No ceiling

No ceiling

* See below, under 'Additional Medicare tax', for details on an increase in the Medicare tax that applies to wages and other compensation only in excess of an applicable threshold amount.

Additional Medicare Tax A 0.9% tax* is imposed on individual wages and other compensation in excess of the following threshold amounts:

*The tax was imposed under the ACA of 2010.

Single MFJ MFS HOH

2016 $200,000 $250,000 $125,000 $200,000

Single MFJ MFS HOH

2017 $200,000 $250,000 $125,000 $200,000



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Tax on net investment income

A 3.8% tax is imposed on the lesser of net investment income or the excess of MAGI* over the following threshold amounts:

2016

2017

Single $200,000 Single $200,000

MFJ $250,000 MFJ $250,000

MFS $125,000 MFS $125,000

HOH $200,000 HOH $200,000

*Modified adjusted gross income. The Unearned Income Medicare Contribution, otherwise known as the net investment income tax (NIIT), was imposed under the ACA of 2010.

Personal exemption (PE) Personal exemption:

2016 $4,050

2017 $4,050

PE phase-out

The phase-out of personal exemptions begins when adjusted gross income (AGI) reaches:

2016

2017

Single $259,400 Single $261,500

MFJ $311,300 MFJ $313,800

MFS $155,650 MFS $156,900

HOH $285,350 HOH $287,650

For 2016, the phase-out of personal exemption ends at $381,900 for single individuals, $433,800 for married persons filing jointly, $407,850 for heads of households, and $216,900 for married individuals filing separate returns. For 2017, the phase-out of personal exemption ends at $384,000 for single individuals, $436,300 for married persons filing jointly, $410,150 for heads of households, and $218,150 for married individuals filing separate returns.

Standard deduction Standard deduction:

Single MFJ MFS HOH

2016 $6,300 $12,600 $6,300 $9,300

Single MFJ MFS HOH

2017 $6,350 $12,700 $6,350 $9,350

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Itemized deductions

2016

2017

The reduction of itemized (not standard) deductions by 3% of AGI in excess of Single $259,400 Single $261,500

the following amounts*:

MFJ $311,300 MFJ $313,800

MFS $155,650 MFS $156,900

HOH $285,350 HOH $287,650

*A taxpayer may not lose more than 80% of his or her deductions as a result of the reduction in the itemized deduction amounts.

For tax years 2013 and later, new rules may affect medical expense deductions that are itemized on Form 1040, Schedule A. The new rules raise the threshold that unreimbursed medical and dental expenses must reach before a deduction is permitted from 7.5% to 10% of adjusted gross income. A temporary exemption applies for individuals age 65 and older until December 31, 2016. Beginning January 1, 2017, the 10% threshold will apply to all taxpayers, including those 65 and over by the end of the taxable year.

Standard mileage rates Standard mileage rates:

business charitable medical & moving

2016 $0.54 $0.14 $0.19

business charitable medical & moving

2017 $0.535 $0.14 $0.17

Section 911

Annual exclusion:

Base housing amount:

Standard qualified housing expense limit*: *Adjustments to the limitation are provided for certain countries with high housing costs. 2016 adjusted limitations are included in Notice 2016-21; 2017 adjusted limitations are yet to be announced.

2016 $101,300 $16,208 $30,390

2017 $102,100 $16,336 $30,630

Expatriation 5-year average annual net income tax in excess of the following amount: Amount includible in gross income of covered expatriate is reduced by*:

2016 $161,000 $693,000

2017 $162,000 $699,000

*but not below zero

Gift tax limits Annual exclusion from total amount of taxable gifts*: Annual exclusion for gifts to non-US citizen spouses*:

2016 $14,000 $148,000

2017 $14,000 $149,000

*This amount is per donor and per donee and refers to gifts that are not future interests in property.

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Alternative minimum tax Alternative minimum tax (AMT) exemption amounts (subject to phase-out described in the table below):

Alternative minimum tax phase-out

The phase-out of the AMT exemption amount begins when the alternative minimum taxable income exceeds the following amounts:

Single MFJ MFS HOH

Single MFJ MFS HOH

2016 $53,900 $83,800 $41,900 $53,900

2016 $119,700 $159,700 $79,850 $119,700

Single MFJ MFS HOH

Single MFJ MFS HOH

2017 $54,300 $84,500 $42,250 $54,300

2017 $120,700 $160,900 $80,450 $120,700

Capital gains tax Long term: Lower income taxpayers: Short term:

2016 15%/20%*

0%* Ordinary rates

2017 15%/20%*

0%* Ordinary rates

* The maximum rate of tax on long-term capital gains (with some exceptions) is 0% on any amount that otherwise would be taxed at a 10% or 15% rate, 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39.6%, and 20% on any amount that otherwise would be taxed at a 39.6% rate.

Qualified dividends Qualified dividend rate: Lower income taxpayers: Nonqualified dividends:

2016 15%/20%*

0%* Ordinary rates

2017 15%/20%*

0%* Ordinary rates

* The maximum rate of tax on qualified dividends is 0% on any amount that otherwise would be taxed at a 10% or 15% rate, 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39.6%, and 20% on any amount that otherwise would be taxed at a 39.6% rate.

Child tax credit Child tax credit:

2016 $1,000

2017 $1,000

The child tax credit is subject to phase-out for individuals with income over certain threshold amounts.

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Supplemental withholding flat rates

Supplemental wages up to $1,000,000 (optional)*:

Supplemental wages greater than $1,000,000 (mandatory):

2016 25%

39.6%

*In lieu of regular tax withholding rates and available only if certain requirements are met.

2017 25%

39.6%

Healthcare Shared Responsibility Payment

The Shared Responsibility Payment for individuals is generally the greater of:*

Flat Dollar Amount (family maximum of $2,085 in 2016 and 2017), or

Percentage of Income above Filing Threshold (rate: 2.5% in 2016 and 2017).

The maximum penalty is published each year by the IRS. For 2016, the maximum is $2,676 per year ($223 per month) for an individual and $13,380 per year ($1,115 per month) for a family with five or more members. Maximum penalties for 2017 will be announced later in this year in a revenue procedure. It is important to note that there are various exemptions, rules, and thresholds that could impact what payment is owed.

Filing thresholds to calculate Percentage of Income amount Single MFJ MFS HOH Qualifying widow(er) with dependent child

2016 $10,350 $20,700 $4,050 $13,350 $16,650

2017 $10,400 $20,800

$4,050 $13,400 $16,750

The above thresholds, other than married filing separately, assume the filer (and their spouse if applicable) is under age 65.

*Under the ACA, individuals must either: (i) have qualifying health care coverage (i.e., minimum essential coverage), (ii) qualify for an exemption from this requirement, or (iii) make a Shared Responsibility Payment with their individual income tax return. Exemptions include, for example, having a short gap in coverage or being offered only coverage that costs more than a certain percentage of household income. Exemptions are also provided for nonresident aliens; US citizens or a resident aliens who were physically present in a foreign country or countries for at least 330 full days during any period of 12-consecutive months; as well as US citizens who were bona fide residents of a foreign country or countries for an uninterrupted period which includes an entire tax year.

It is important to note that while the ACA is currently in force, President Trump issued the Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal on January 20th of this year. According to the IRS website, the IRS put in place system changes that would reject tax returns during processing in instances where the taxpayer did not provide information related to health coverage on their return. In response to the executive order, the IRS announced that it is making changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn't indicate their coverage status.

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