"The hardest thing in this world to understand is the income tax."
- Albert Einstein

2017 Estimated Income Tax Brackets and Rates

For 2017, the estate and gift tax exemption if $5.69 million per individual, up from $5.45 million in 2016. That means an individual can leave $5.49 million to heirs and pay for federal estate or gift tax. A married couple will be able to shield just shy of $11 million ($10.98 million) from federal estate and gift taxes. The annual gift exclusion remains at $14,000 for 2017.

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

 
Below are links to tax websites and news services.
 
IRS: http://www.irs.gov/
 
FTB: http://www.ftb.ca.gov/index.shtml
 
IRS Newsroom: http://www.irs.gov/newsroom/rss/0,,id=222213,00.rss
 
Wall Street Journal: http://online.wsj.com/home-page
 
J.K. Lasser Tax Resource: http://www.jklasser.com/rss-feeds/

Spidell Publishing, Inc. (California tax law materials, seminars and webinars): www.spidell.com