Author's notes:
- I've updated this piece as a separate post to include Social Security benefits, Pease limitations, PEP threshold amounts and more. You'll find the updated post - which includes the tax tables and other information below - here.
- These are the 2015 rates. If you're looking for the 2016 tax rates, you'll find them here.
The Internal Revenue Service has announced the annual inflation adjustments for a number of provisions for the year 2015, including tax rate schedules, tax tables and cost-of-living adjustments for certain tax items. These are the applicable numbers for the tax year 2015 - in other words, effective January 1, 2015. They are NOT the numbers and rates that you’ll use to prepare your 2014 tax returns in 2015 (if you're looking for those, you'll find them here). These numbers and rates are those you’ll use to prepare your 2015 tax returns in 2016. Got it? Good. Here are the highlights:
Tax Brackets. The big news is, of course, the tax brackets. Here's what they look like for 2015:
Individual Taxpayers
Married Individuals Filing Joint Returns and Surviving Spouses
Standard Deductions. All taxpayers will see a slight bump in the standard deduction. The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
Itemized Deductions. The limitation for itemized deductions - the Pease limitations, named after former Rep. Don Pease (D-OH) - for 2015 will kick in for individuals with incomes of $258,250 or more ($309,900 for married couples filing jointly). The Pease limitations were slated to be reduced beginning in 2006 and eliminated in 2010; as with the other tax cuts, the elimination was extended through the end of 2012. The limitations were brought back in 2013 at the original thresholds, indexed for inflation. The result of those changes is basically an increase in the top marginal tax rates.
Personal Exemptions. The personal exemption amount also goes up for 2015. The personal exemption for 2015 is $4,000, up from $3,950 in 2014. Phase-outs for personal exemption amounts (sometimes called "PEP") begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly); they phase out completely at $380,750 ($432,400 for married couples filing jointly.) And now, onto more updates! Family Related Tax Item Updates:
- Earned Income Tax Credit (EITC). For 2015, the maximum EITC amount available is $3,359 for taxpayers filing jointly with one child; $5,548 for two children; $6,242 for three or more children (up from $6,143 in 2014) and $503 for no children. Phaseouts are based on filing status and number of children and begin at $8,240 for single taxpayers with no children and $18,110 for single taxpayers with one or more children.
- Child & Dependent Care Credit. For 2015, the value used to determine the amount of credit that may be refundable is $3,000 (the credit amount has not changed). Keep in mind that this is the value of the expenses used to determine the credit and not the actual amount of the credit.
- Kiddie Tax. For 2015, the threshold for the kiddie tax - meaning the amount of unearned net income that a child can take home without paying any federal income tax - is $1,050.
- Adoption Credit. For 2015, the credit allowed for an adoption of a child with special needs is $13,400, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,400. Phaseouts do apply beginning at taxpayers with modified adjusted gross income (MAGI) in excess of $201,010 and completely phased out for taxpayers with MAGI of $241,010 or more.
Education Related Updates:
- Hope Scholarship Credit. The Hope Scholarship Credit for 2015 will be an amount equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000 but not in excess of $4,000. That means that the maximum Hope Scholarship Credit allowable for 2015 is $2,500. Income restrictions do apply and for 2015, those kick in for taxpayers with modified adjusted gross income (MAGI) in excess of $80,000 ($160,000 for a joint return).
- Lifetime Learning Credit. As with the Hope Scholarship Credit, income restrictions apply to the Lifetime Learning Credit. For 2015, those restrictions begin with taxpayers with modified adjusted gross income (MAGI) in excess of $55,000 ($110,000 for a joint return).
- Student Loan Interest Deduction. For 2015, the maximum amount that you can take as a deduction for interest paid on student loans remains at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess of $65,000 ($130,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income (MAGI) of $80,000 or more ($160,000 or more for joint returns).
Health Care and Fringe Benefit Updates:
- Flexible Spending Accounts. The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending accounts (FSA) edges up to $2,550 for 2015 (up from $2,500).
- Qualified Transportation Fringe Benefit. For 2015, the monthly limitation for transportation in a commuter highway vehicle and any transit pass is $130. The monthly limitation for qualified parking is $250.
Federal Estate and Gift Tax Updates:
- Federal Estate Tax Exemption. Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.
- Federal Gift Tax Exclusion. The annual exclusion for gifts remains at $14,000 for 2015. The exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014.
Miscellaneous (but still important!) Updates:
- Foreign Earned Income Exclusion. For 2015, the foreign earned income exclusion finally hits six figures: it's now $100,800, up from $99,200 for 2014.
- Alternative Minimum Tax (AMT) Exemptions. The AMT exemption amount for tax year 2015 is $53,600 for individuals and $83,400 for married couples filing jointly. That compares to $52,800 and $82,100, respectively for 2013. In years past, the AMT was subject to a last minute scramble by Congress to “patch” the exemption but as part of the American Taxpayer Relief Act of 2012 (ATRA), the AMT is permanently adjusted for inflation - that's why you now see it in this list.
Retirement Updates:
- Elective Contribution Limits. The elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increased from $17,500 in 2014 to $18,000 in 2015. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 in 2014 to $6,000 in 2015.
- IRA Contributions. The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over remains at $1,000.
- More details on retirement numbers were posted earlier this month and you can find Forbes' summary of those here.
All together, the IRS posted more than 40 updates. You can read more about them at Revenue Procedure 2014-61. And if many of these numbers look familiar, it's because they match up with predictions released by Bloomberg BNA earlier this year. Thanks,
