Income Tax 2016

U.S. Paywizard.org - find here the federal tax income tax rates for 2016, including the deductions and exemptions.

2016 Federal Individual Income Tax Rates, Deductions and Exemptions

Tax return due: Tuesday April 18, 2017, unless you file an extension with form 4868 to push the deadline 6 months later to October 16, 2017.

You have to pay federal income tax and on top of that state and local income tax in most states. Your tax bracket depends upon your income and your tax-filing classification.

There are seven federal income tax brackets (ranging from 10% to 39.6%), the brackets per state vary. There are five classifications: SingleMarried Filing JointlyQualified Widow or Widower, Married Filing Separately, and Head of Household.

Below more tax jargon explained, what is/are the:

2016 Individual Federal Income Brackets and Tax Rates
Single

Marginal
Tax Rate
Taxable Income
10% $0 - $9,275
15% $9,276 - $37,650
25% $37,651 - $91,150
28% $91,151 - $190,150
33% $190,151 - $413,350
35% $413,351 -$415,050
39.6% $415,051 or more

Married Filing Jointly/Qualifying Widow(er)

Marginal
Tax Rate
Taxable Income
10% $0 - $18,550
15% $18,551 - $75,300
25% $75,301 - 151,900
28% $151,901 - $231,450
33% $231,451 - $413,350
35% $413,351 - $466,950
39.6% $466,951 or more

Married Filing Separately

Marginal
Tax Rate
Taxable Income
10% $0 - $9,275
15% $9,276 - $37,650
25% $37,651 - $75,950
28% $75,951 - $115,725
33% $115,726 - $206,675
35% $206,676 - $233.475
39.6% $233,476 or more

Head of Household

Marginal
Tax Rate
Head of
Household
10% $0 - $13,250
15% $13,251 - $50,400
25% $50,401 - 130,150
28% $130,151 - $210,800
33% $210,801 - $413,350
35% $413,351 - $441,000
39.6% $441,001 or more

2016 Exemptions: for yourself (personal exemption), spouse (if you are married) or your dependents: $4,050 per person 

The personal exemption is not a subject to federal income tax, but it is the minimal amount of money you need to get by at a subsistence level.

2016 Personal Standard Deductions

Filing Status

Standard Deduction

Elderly or Blind 
Single $6,300 $1,550
Married Filing Jointly $12,600 $1,250
Married filing separately $6,300 $1,250
Head of Household $9,300 $1,550
Qualifying Widow(er) $12,600 $1,250

Standard Deduction for Dependents:

$1000 or sum of $350 and dependent's earned income, not to exceed the standard deduction for the dependent's filing status.

Standard or itemized deductions?

Individual tax payers are allowed a choice when preparing their income tax returns. They can itemize their deductions from a list of allowable items and subtract those itemized deductions and their personal exemption deductions from their AGI to get their Taxable Income. Or they can choose to subtract the standard deduction and their personal exemptions. The choice between standard and itemized deduction depends on:

  • a comparison between both types of deductions: what choice gives more money to subtract?
  • do you have kept records of the items you want to subtract? - you need them as prove.
  • if you are filing as 'Married', Filing separately', and your spouse itemizes, you have to do that to.

Option Standard Deduction and Personal Exemptions

Example 1: a single without children pays income tax above a filing threshold of $10,350. This threshold is the Standard Deduction of $6,300 plus the Personal Exemption of $4,050. So, a single would actually pay 0% over the first $10,350 of income. After subtracting this amount from her or his income, the tax brackets  start to work. Over the next $9,275 a single pays 10% tax; 15% over the amount between 9,276 and $37,650 and so on, depending on your Personal Exemption Phaseout, or PEP threshold.

You can take an exemption for yourself  - the personal exemption - or for your dependents, but you cannot do that if you can be claimed as a dependent by another taxpayer - even if this taxpayer doesn't actually claim you as a dependent. If you are married you can claim an exemption for your spouse filing Jointly or Separately - only if another taxpayer doesn't claim your spouse  as a dependent. You cannot claim a person dependent unless that person is your Qualifying Child or qualifying relative.

You must always list the social security number (SSN) of any dependent for whom you claim an exemption. If you don't list the SSN the exemption could be denied.

2016 Personal Filing Threshold

Filing StatusAge

Threshold, file when Gross Income Exceeds

Single Under 65 $10,350
65 or older $11,900
Head Household Under 65 $13,350
65 or older $14,900
Married Filing Jointly Under 65 both spouses $20,700
65 or older one spouse $21,950
65 or older both spouses $23,200
Married Filing Separately any age $4,050

Qualifying Widow(er) with

dependent child

under 65 $16,650

65 or older $17,900

Personal Exemption Phaseout (PEP)

The personal exemption phases out, or gradually reduces by 2 percent for each $2,500 (or fractional portion of $2,500) by which your adjusted gross income for the year exceeds a threshold amount. For people who file the married filing separately option, the personal exemption phases out by 2 percent for each $1,250 of their adjusted gross income over the threshold.

Filing statusAGI Beginning PhaseoutAGI Completed Phaseout
Single $259,400 381,900
Married filing jointly $311,300 $433,800
Married filing separately $155,650 $216,900
Head of Household $285,350 $407,850

Example 1: you file as head of household with an adjusted gross income (AGI) of $300,775 and you claim two personal exemptions: one for yourself and one for your son. Your relevant PEP threshold is $285,350, so your AGI exceeds the threshold by $15,425 ($300,775 - $285,350). You have to divide this amount of $15,425 by $2,500 which is 6.17, which rounds up to 6. Your reduction is 12% (6x2%) of $8,100 for your two personal exemptions. Take your $8,100 original exemption minus (12%x8,100) phase out which is $972 = $7,128 personal exemption allowed for this year.

Example 2: you are part of a married couple filing jointly with two children. Your adjusted gross income (AGI) is $347,000. Your relevant PEP threshold is $311,300, so your AGI exceeds the threshold of $311,300 by $35,700. Divide this excess by $2,500 = 14.28, which rounds up to 14. Your reduction is 28% (=14x2%) of $16,200 (4 x the personal exemption of $4,050), which is $4,536. That means you $16,200 original exemption minus the phase out of $4,436= $11,664 personal exemption allowed for this year. 

Earned Income Credit (EITC)

If you have a low or moderate income you can supplement your earnings with the EITC. If you qualify for the EITC you can reduce your taxes and increase your tax refund. For the tax year 2016, the EITC begins to phase out at an adjusted gross income (AGI) of $8,270 for individuals without qualifying children, and $23,740 for tax payers with one or more qualifying children.

 Childless1 child2 children3 or more children
Income at Max Credit - Single/Married filing Jointly $6,610 $9,920 $13,930 $13,930
Maximum credit amount -Single/Married filing jointly  $506 3,373 $5,572 $6,269
Single: Phase-out begins - ends   $8,270 -$14,880 $18,190 - $39,296 $18,190 - $44,648 $18,190 - $47,955

Married filing jointly: Phase-out begins - ends

$13,820 - $20,430 $23,740 - $44,846 $23,740 - $50,198 $23,740 - $53,505

Itemized Deductions 

The income threshold for itemized deductions - the Pease limitations, named after former Rep. Don Pease - will begin with incomes of $259,4000 for single filers. 

Income threshold for itemized deductions:

Single $259,400
Married filing jointly $311,300
Head of household $285,350
Married filing separately $155,650

If the Pease limitations apply, the total of your itemized deductions is reduced by the lesser of:

  • 3% of your AGI above the applicable threshold,or
  • 80% of the amount of itemized duductions allowable for this tax year

Pease limitations apply to charitable donations, home mortgage interest deduction, state and local tax deductions and various itemized deductions, but not to medical expenses, investment expenses, certain losses or theft.

Alternative Minimum Tax (AMT)

The AMT exemption amounts are adjustable to inflation. Figuring out if you are subject to the AMT means calculating your tax liability twice, you can do that on Form 6251. If the tax calculated on Form 6251 is higher than what you calculated on your regular tax form, you have to pay the difference as AMT in addition to the regularly calculated income tax. 

AMT Exemption amounts and phaseouts

Filing status Exemption amount Phase-out starts at: Phase-out ends at
Single/Head of household $53,900 $119,700 $335,300
Married filing separately $41,900 $79,450 $247,450
Married filing jointly/Qualifying widow(er) $83,800 $159,700 $494,450

Adoption Credit

The credit allowed for an adoption of a child with special needs is $13,460. The maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,460. Phaseout apply with a modified adjusted gross income  over $201,920. The credit is completely phased out with a adjusted gross income of more than $241,920. 

Child Tax Credit

The child credit can be worth as much as $1,000 per child and is al least partially refundable if you had an earned income of more than $3,000. The tax credit will phase out at an AGI of $75,000 for single filers and head of households, $110,000 if you are married jointly.

American Opportunity Credit (formerly Hope Scholarship Credit)

The American opportunity tax credit, which expanded and renamed the already-existing Hope scholarship credit, can be claimed in tax-years 2009 through 2017 for expenses paid for tuition, certain fees and course materials for higher education.

This credit is a refundable tax credit for undergraduate college education expenses. Available only for 4 tax years per eligible student. You can claim the American Opportunity Credit for yourself or your dependents if you or your dependents are students enrolled at least half-time in a college, university or other accredited post-secondary educational institution.

The credit is limited to $2,500 on the first $4,000 of qualifying educational expenses. Phaseouts apply for the credit beginning with a modified adjusted gross income (AGI) over $80,000 ($160,000 for married couples filing jointly). A reduced amount of the credit is available if your AGI is over $90,000 (($180,000 for married jointly filers).

The amount of American Opportunity Tax Credit is:

  • 100% of the first $2,000 in qualifying education expenses, plus
  • 25% of the next $2,000 in qualifying expenses

For a maximum credit of $2,500 based on $4,000 in qualifying expenses.

Up to 40% of the American Opportunity credit is refundable. That means up to $1,000 of the American Opportunity credit can be refunded, even if your tax liability is zero.

Qualifying expenses are restricted to tuition and related course materials. So books, lab supplies, software and other class materials may qualify for the tax credit.

Lifetime Learning Credit

The credit is available for any post-secondary tuition, including graduate school or undergraduate education without a limit on years. The lifetime learning credit is available for any course and the student does not have to be enrolled at least half-time. It is a non-refundable credit.

The credit is limited just to tuition and fees required for enrolment or attendance, including amounts required to be paid to institutions for course-related books, supplies and equipment.

As with the American Opportunity Tax Credit, income restrictions apply to the Lifetime Learning Credit. To claim the full credit as a single filer, your modified adjusted gross income (MAGI) must be $65,000 or less, or $131,000 or less if you are married and filing jointly. If your MAGI is between $55,000 and $65,000 (between  $111,000 but less than $131,000 for married filing jointly), you receive a reduced amount of the credit. If your MAGI is over $65,000 ($130,000 for joint filers), you cannot claim the credit.

The maximum credit is up to $2,000 per return.

Tax on a Child's Investment and Other Unearned Income - Kiddie Tax

The kiddie tax applies to your child's unearned income when it exceeds $2,100. The first $1,050 reported on your return is tax free, the second $1,050 is taxed at the child's rate. Unearned income above that amount is subject to the Kiddie Tax, that is your marginal tax rate, which is the highest rate applied on your return. That could be as high as 28% to 39.6%.

Unearned income can be investments, such as interest, dividends and capital gains. Income of wages or self-employment are not included.

Your child is generally affected with an unearned income of more than $2,100 if he or she is:

  • under the age of 18 at the end of 2016, with earned income from working, that is less than or equal to half their support
  • full-time student age 19 and under 24 at the end of 2016, with earned income from working, that is less than or equal to half their support.
  • at least one of the parents was alive at the end of 2016
  • the child does not file a joint return for 2016

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