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Form 1040
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IRS Adjusts Many 2017 Tax Provisions for Inflation

Oct 26th 2016
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The IRS on Oct. 25 issued the annual inflation adjustments for more than 50 tax provisions for the 2017 tax year, including tax rate schedules and tax tables.

These adjustments are used on tax returns filed in 2018, not in 2017. (Click here for 2016 adjusted provision amounts for tax returns filed in 2017.)

The following are some key provision and tax rate bracket amounts that have changed or stayed the same for the 2017 tax year:

Tax brackets. The 39.6 percent tax rate affects single taxpayers whose income exceeds $418,400, up from $415,050 for 2016, and $470,700 for married taxpayers filing jointly, up from $466,950. The other marginal tax rates – 10, 15, 25, 28, 33, and 35 percent – and the related income tax thresholds for 2017 are described in Revenue Procedure 2016-55.

Standard deduction. The standard deduction for married taxpayers filing jointly rises to $12,700, up from $12,600 for 2016. For single taxpayers and married individuals filing separately, the standard deduction increases to $6,350, up from $6,300, and for heads of households, it is $9,350, up from $9,300.

Personal exemption. The personal exemption remains at $4,050. However, the exemption is subject to a phase-out that begins with adjusted gross incomes (AGIs) of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly).

Itemized deductions. The limitation for itemized deductions to be claimed on tax year 2017 individual income tax returns begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).

Alternative minimum tax. The alternative minimum tax exemption amount is $54,300 and begins to phase out at $120,700 ($84,500 for married couples filing jointly, for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly). For 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).

Earned Income Tax Credit. The maximum Earned Income Tax Credit amount is $6,318 for taxpayers filing jointly who have three or more qualifying children, up from $6,269 for 2016. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds, and phase-outs.

Lifetime Learning Credit. The AGI amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for 2016.

Adoption Tax Credit. The credit allowed for an adoption of a child with special needs is $13,570, up from $13,460 for 2016, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,570. The available adoption credit begins to phase out for taxpayers with modified AGI in excess of $203,540 and is completely phased out for taxpayers with modified AGI of $243,540 or more.

“Kiddie tax.” The amount that is used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax” is $1,050, the same as the prior year.

Transportation. The monthly limitation for the qualified transportation fringe benefit is $255, up from $130 for 2016. The monthly limitation for qualified parking also is $255.

Health coverage. The dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695.

For participants who have self-only coverage in a medical savings account, the plan must have an annual deductible that is not less than $2,250, but not more than $3,350 – amounts that remain unchanged. For self-only coverage, the maximum out-of-pocket expense amount is $4,500, up from $4,450 for 2016. For participants with family coverage, the floor for the annual deductible is $4,500, up from $4,450; however, the deductible cannot exceed $6,750, an increase of $50 from the limit for tax year 2016. For family coverage, the out-of-pocket expense limit is $8,250, up from $8,150.

Foreign earned income exclusion. It increases from $101,300 for 2016 to $102,100 for 2017.

Unified credit against estate tax. Estates of decedents who die during 2017 have a basic exclusion amount of $5.49 million, up from a total of $5.45 million for estates of decedents who died in 2016.

Related article:

IRS Issues Inflation-Adjusted Tax Amounts for 2016 Tax Year