2017 Tax Brackets

November 10, 2016

Introduction

Every year, the IRS adjusts more than 40 tax provisions for inflation. This is done to prevent what is called “bracket creep.” This is the phenomenon by which people are pushed into higher income tax brackets or have reduced value from credits or deductions due to inflation, instead of any increase in real income.

The IRS uses the Consumer Price Index (CPI) to calculate the past year’s inflation and adjusts income thresholds, deduction amounts, and credit values accordingly.[1]

Estimated Income Tax Brackets and Rates

In 2017, the income limits for all brackets and all filers will be adjusted for inflation and will be as follows (Table 1). The top marginal income tax rate of 39.6 percent will hit taxpayers with taxable income of $418,400 and higher for single filers and $470,700 and higher for married couples filing jointly.

Table 1. Single Taxable Income Brackets and Rates, 2017

Rate

Taxable Income Bracket

Tax Owed

10%

$0 to $9,325

10% of Taxable Income

15%

$9,325 to $37,950

$932.50 plus 15% of the excess over $9325

25%

$37,950 to $91,900

$5,226.25 plus 25% of the excess over $37,950

28%

$91,900 to $191,650

$18,713.75 plus 28% of the excess over $91,900

33%

$191,650 to $416,700

$46,643.75 plus 33% of the excess over $191,650

35%

$416,700 to $418,400

$120,910.25 plus 35% of the excess over $416,700

39.60%

$418,400+

$121,505.25 plus 39.6% of the excess over $418,400

 

Table 2. Married Filing Joint Taxable Income Brackets and Rates, 2017

Rate

Taxable Income Bracket

Tax Owed

10%

$0 to $18,650

10% of taxable income

15%

$18,650 to $75,900

$1,865 plus 15% of the excess over $18,650

25%

$75,900 to $153,100

$10,452.50 plus 25% of the excess over $75,900

28%

$153,100 to $233,350

$29,752.50 plus 28% of the excess over $153,100

33%

$233,350 to $416,700

$52,222.50 plus 33% of the excess over $233,350

35%

$416,700 to $470,700

$112,728 plus 35% of the excess over $416,700

39.60%

$470,700+

$131,628 plus 39.6% of the excess over $470,700

 

Table 3. Head of Household Taxable Income Brackets and Rates, 2017

Rate

Taxable Income Bracket

Tax Owed

10%

$0 to $13,350

10% of taxable income

15%

$13,350 to $50,800

$1,335 plus 15% of the excess over $13,350

25%

$50,800 to $131,200

$6,952.50 plus 25% of the excess over $50,800

28%

$131,200 to $212,500

$27,052.50 plus 28% of the excess over $131,200

33%

$212,500 to $416,700

$49,816.50 plus 33% of the excess over $212,500

35%

$416,700 to $444,500

$117,202.50 plus 35% of the excess over $416,701

39.60%

$444,550+

$126,950 plus 39.6% of the excess over $444,550

Source: IRS.

Standard Deduction and Personal Exemption

The standard deduction for single filers will increase by $50 and $100 for married couples filing jointly (Table 4).

The personal exemption for 2017 remains the same at $4,050.

Table 4. 2017 Standard Deduction and Personal Exemption

Filing Status

Deduction Amount

Single

 $6,350

Married Filing Jointly

 $12,700

Head of Household

 $9,350

Personal Exemption

 $4,050

Source: IRS.


PEP and Pease

PEP and Pease are two provisions in the tax code that increase taxable income for high-income earners. PEP is the phaseout of the personal exemption and Pease (named after former Senator Donald Pease) phases out the value of most itemized deductions once a taxpayer’s adjusted gross income reaches a certain amount.

The income threshold for both PEP and Pease will increase from last year to $261,500 for single filers and $318,800 for married couples filing jointly (Tables 5 and 6). PEP will end at $384,000 for singles and $436,300 for married couples filing jointly (both will increase from 2016), meaning that taxpayers with AGI above these limits will no longer benefit from personal exemptions.

Table 5. 2017 Pease Limitations on Itemized Deductions

Filing Status

Income

Single

 $261,500

Married Filing Jointly

 $313,800

Head of Household

 $287,650

Married Filing Separately

 $156,900

Source: IRS.

 

Table 6. 2017 Personal Exemption Phaseout

Filing Status

Phaseout Begins

Phaseout Complete

Single

 $261,500

 $384,000

Married Filing Jointly

 $313,800

 $436,300

Head of Household

 $287,650

 $410,150

Married Filing Separately

 $156,900

 $218,150

Source: IRS.

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.

The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.

The AMT exemption amount for 2017 is $54,300 for singles and $84,500 for married couples filing jointly (Table 7).

Table 7. 2017 Alternative Minimum Tax Exemptions

Filing Status

Exemption Amount

Single

 $54,300

Married Filing Jointly

 $84,500

Married Filing Separately

 $42,250

Trusts & Estates

 $24,100

Source: IRS.

In 2017, the 28 percent AMT rate applies to excess AMTI of $187,800 for all taxpayers ($93,900 for married couples filing joint returns).

Under current law, AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2017, the exemption will start phasing out at $120,700 in AMTI for single filers and $160,900 for married taxpayers filing jointly (Table 8.

Table 8. 2017 Alternative Minimum Tax Exemption Phaseout Thresholds

Filing Status

Threshold

Single

 $120,700

Married Filing Jointly

 $160,900

Married Filing Separately, Estates and Trusts

 $80,450

 

Earned Income Tax Credit

2017’s maximum Earned Income Tax Credit for singles, heads of households, and joint filers is $510, if the filer has no children (Table 9). The credit is $3,400 for one child, $5,616 for two children, and $6,318 for three or more children. All of the aforementioned are relatively small increases from 2016.

Table 9. 2017 Earned Income Tax Credit Parameters

Filing Status

 

No Children

One Child

Two Children

Three or More Children

Single or Head of Household

Income at Max Credit

$6,670

$10,000

$14,040

$14,040

 

Maximum Credit

$510

$3,400

$5,616

$6,318

 

Phaseout Begins

$8,340

$18,340

$18,340

$18,340

 

Phaseout Ends (Credit Equals Zero)

$15,010

$39,617

$45,007

$48,340

           

Married Filing Jointly

Income at Max Credit

$6,670

$10,000

$14,040

$14,040

 

Maximum Credit

$510

$3,400

$5,616

$6,318

 

Phaseout Begins

$13,930

$23,930

$23,930

$23,930

 

Phaseout Ends (Credit Equals Zero)

$20,600

$45,207

$50,597

$53,930

Source: IRS.

 


[1] Internal Revenue Service, https://www.irs.gov/pub/irs-drop/rp-16-55.pdf

 

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