The New Tax Numbers for 2016

Knowing your IRS tax rate and rules that apply to 2016 are crucial.  They can have a major impact not only on your income tax returns but on your retirement and estate planning.

The positive news is that many of the key rates have not changed.  We have prepared a useful and convenient chart here which enables you to quickly review them all in one place.

By way of highlights, here are just a few key rates.  The top personal income tax bracket of 39.6% is still in effect with slight increases for single filers at an income level of $415,051 and for married couple filing joint returns at $466,951.

The maximum capital gains and qualified dividend rate of 15% is still applicable with a 20% rate for those in 39.6 % tax bracket.

The limit on IRA contributions stayed at $5,500 for those under 50 years of age with an allowable $1,000 additional contribution for those over 50.  And the ceiling on employee elective deferrals in your 401K and 403B remain the same in 2016 as 2015 at $18,000 for under 50 and an additional allowable contribution of $6,000 if you are over 50, for a total amount of $24,000.

We highly recommend you carefully review these rates with your financial planner or tax consultant and any changes that may affect you:

• The 3.8 percent Medicare surtax still applies to the investment income for single filers making over $200,000 and married couples filing jointly making over $250,000.

• The personal exemption phase-out and itemized deductions phase-out for high income taxpayers are still in effect.

• The top personal income tax bracket of 39.6 percent is also still in effect, with a slight increase in the brackets for single filers at $415,051 and $466,951 for married couples filing jointly.

• The maximum capital gains and qualified dividend rate of 15 percent has been retained for most taxpayers, with the 20 percent rate for those in the 39.6 percent tax bracket.

• The maximum contribution that can be made to a defined contribution plan in 2016 under Section 415 is the lesser of $53,000 or 100 percent of compensation—unchanged from 2015.

• The limit on employee elective deferrals to Section 401K and Section 403b plans has remained unchanged at $18,000 in 2016. The limit for Section 457 plan salary reductions is likewise $18,000 in 2016.

• The maximum elective deferral for a SIMPLE or 401 K SIMPLE plan remains at $12,500 in 2016.

• The federal estate tax exemption has been increased to $5.45 million for 2016, as has the generation skipping tax exemption.

• The annual gift tax exclusion is $14,000, unchanged from 2015.

• The modified adjusted gross income (MAGI) level at which Roth IRA contributions start to be phased out in 2016 are at $117,000 for single taxpayers and $184,000 for married taxpayers filing jointly.

• The personal exemption amount has increased by $50 to $4,050.