IRS Announces 2016 Tax Rates, Inflation Adjustments

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Oct. 21 — The standard deduction for heads of households in tax year 2016 will rise to $9,300 from 2015's $9,250, while the personal exemption will increase to $4,050 from $4,000, the Internal Revenue Service said.

The other standard deduction amounts for 2016 are unchanged from 2015—$6,300 for singles and married persons filing separately, and $12,600 for married couples filing jointly, the IRS said Oct. 21 in Revenue Procedure 2015-53 and a related news release (IR-2015-119).

The IRS said a 39.6 percent tax rate will apply to single taxpayers with incomes exceeding $415,050 and to married taxpayers filing jointly with incomes of more than $466,950. This rate is an increase from the top 2015 tax rates of $413,200 for single taxpayers and $464,850 for married taxpayers filing jointly (211 DTR G-1, 10/31/14).

The guidance and news release describe annual inflation adjustments for more than 50 tax provisions, including:

• the alternative minimum tax exemption amount for 2016, which is $53,900 and begins to phase out at $119,700 (for married couples filing jointly, the amount is $83,800 and begins to phase out at $159,700); and
• the monthly limitation for qualified transportation fringe benefit, which is unchanged at $130 for transportation but increases to $255 for qualified parking, up from $250 in 2015.

Higher Penalties

According to Bloomberg BNA projections released Sept. 16, tax bills may be lower in 2016 because of inflation adjustments, but tax penalties will be higher due to a combination of legislative increases and cost-of-living adjustments (180 DTR G-1, 9/17/15).

Congress increased the base amounts of some penalties, which are set to take effect in 2016, and because of annual inflation adjustments, the cost of failure to properly report and pay tax increases each year.

Tax penalties—for failure to file returns with the IRS, failure to furnish information returns and failure to pay tax—affect individuals, companies, trusts and estates. Tax return preparers also are subject to penalties that are adjusted for inflation.

Rev. Proc. 2015-53 is scheduled to appear in Internal Revenue Bulletin 2015-44 dated Nov. 2.