Each year, the IRS makes adjustments to a wide range of tax provisions to reflect the impact of inflation. With inflation relatively low, the adjustments made by the IRS for 2017 are very small.
Here’s what you need to know about the 2017 IRS inflation adjustments:
- The contribution limits for qualified retirement accounts essentially remain unchanged. In 2017, you can contribute up to $18,000 to a 401(k), 403(b) or 457 plan (or $24,000 if you’re age 50 or older) and up to $5,500 to a traditional or Roth IRA (or $6,500 if you’re age 50 or older). However, the limit on total annual contributions that can be made to all retirement accounts maintained by one employer — including elective deferrals, employer matching contributions and employer non-elective contributions — will increase by $1,000 in 2017: from $53,000 to $54,000, or $60,000 if you’re age 50 or over.
- The estate tax exemption will increase from $5.45 million (or $10.9 million for married couples filing jointly) to $5.49 million (or $10.98 million for married couples filing jointly).
- The contribution limit for self-only health savings accounts (HSAs) will increase by $50 in 2017: from $3,350 to $3,400. However, the family contribution limit of $6,750 and the catch-up contribution amount for those age 55 or over of $1,000 will remain the same.
- The penalty for not maintaining minimum essential health coverage under the Affordable Care Act remains the same next year: 2.5% of total household adjusted gross income or $695 per adult and $347 per child, up to a maximum of $2,085 per family.
- The Alternative Minimum Tax (AMT) exemption amount in 2017 will rise by $400: from $53,900 to $54,300, or $84,500 for married couples filing jointly. The AMT will begin to phase out next year once annual income exceeds $120,700, or $160,900 for married couples filing jointly.
- The income limit for eligibility to claim itemized deductions next year will begin with incomes of $287,650 or more, or $313,800 for married couples filing jointly.
Also, according to the 2017 tax rate schedules, the 39.6% tax rate will affect single taxpayers whose income exceeds $418,400 and married taxpayers filing jointly whose income exceeds $470,700. This is up from $415,050 and $466,950, respectively, in 2016.
Notes that these adjustments are for tax year 2017, which means they will generally be used on tax returns that you will file in 2018.
Please contact us if you have any questions about these inflation adjustments and how they might affect your tax and financial strategies next year.