Individual Income Taxes

Chapter 14: Section 2

See above for information about individual tax rates, employment taxes, dividend and capital tax rates, and AMT rates.

Personal Exemptions

The personal exemption amount for 2016, as indexed for inflation, is $4,050. However, for 2016 the exemption is subject to a phase-out that begins with 2016 adjusted gross incomes of $259,400 ($285,350 for head of household filers). For married individuals filing jointly, the exemption is subject to a phase-out that begins with adjusted gross incomes of
$311,300 ($155,650 for married couples filing separate returns). The exemption phases
out for single filers completely at adjusted gross incomes of $381,900 (adjusted gross incomes of $407,850 for head of household filers, $433,800 for married couples filing jointly, and $216,900 for married couples filing separate returns.) For 2016, a personal exemption amount may not be claimed for a full time student after the child reaches the age of 24 unless the child’s gross income does not exceed the exemption amount of
$4,050.

Standard Deduction Amounts

The basic standard deduction amounts for 2016 and 2017, as adjusted for inflation, are:

 

The additional standard deduction amount for married taxpayers who are 65 or older, or blind, is $1,250 for 2016 and $1,250 in 2017. For a single or head-of-household tax- payer—not a surviving spouse—over the age of 65, the additional standard deduction amount is $1,550 for 2016 and remains $1,550 in 2017.

For an individual who can be claimed as a dependent on another person’s return, the basic standard deduction for 2016 cannot exceed the greater of $1, 050 or $350 plus the individual’s earned income. That deduction cannot be more than the regular basic standard deduction amount of $6,300 in 2016. For 2017 for an individual who can be claimed as a dependent on another person’s return, the basic standard deduction cannot exceed the greater of $1,050, or $350 plus the individual’s earned income. That deduction cannot be more than the regular basic standard deduction of $6,350 in 2017.

Note that an adjustment for the so-called “marriage penalty” puts the standard deduction for married couples filing jointly at double the standard deduction for those filing single.

Same-sex and common-law marriage. As a result of the U.S. Supreme Court decision on the Defense of Marriage Act (DOMA) on June 26, 2013, same-sex marriages receive similar treatment as common-law marriages do under the taxcode as opposite sex married couples. Couples in domestic partnerships and unions, or other similar formal relation- ships recognized but not considered as married under state law are not considered to be married for federal tax purposes. The IRS says this conclusion applies to both opposite-sex and same-sex relationships.

Estate tax. Effective Jan. 1, 2013, the federal estate tax rate is 40 percent, an increase from the 35 percent in effect during 2012. The federal estate tax exemption, which is the amount of a deceased individual’s estate shielded from the estate tax, is indexed to inflation. The exemption is $5.45 million in 2016 and $5.49 million in 2017. With a married couple, this is a per-spouse exclusion and it is “portable” meaning that when one spouse passes away, the surviving spouse can claim any remaining unused exclusion of the deceased spouse’s exclusion, resulting in an effective exclusion per married couple of $10.90 million in 2016 and $10.98 million in 2017. The large exemption amount will prevent most married federal employees (opposite-sex and same-sex) from having to pay federal estate taxes. Employees should be aware that there are some states that impose their own estate tax with estate tax exemptions far below the federal exemption.

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