Tax Bills to Trend Lower For Taxpayers in 2016, But Penalties Will Increase
Thursday, September 17th, 2015
Bloomberg BNA gave taxpayers a head start today on their tax planning and alerted them to increased compliance penalties with the release of its Projected 2016 Tax Rates, a detailed and comprehensive projection of inflation-adjusted tax items. People whose income is the same compared to last year may enjoy a lower effective tax rate – and a lower tax bill – because of the inflation adjustments. At the same time, taxpayers that fail to comply with return filing and tax payment requirements will face larger penalties in 2016 because of a combination of legislative changes and upward inflation adjustments.
"Higher penalties encourage compliance and increase revenue, and taxpayers should expect the trend toward higher penalties to continue," said George Farrah, Bloomberg BNA Tax & Accounting Editorial Director.
With projections for the income tax brackets, personal exemption, standard deduction, penalties, and many other amounts, the report delivers information taxpayers and tax planners need to save tax dollars in 2016. The report is available online here and includes more than 320 figures contained in over 55 Internal Revenue Code sections. The Internal Revenue Service is expected to publish its official statement of 2016 inflation adjusted amounts in a revenue procedure later this year. These amounts are based on Bureau of Labor Statistics inflation adjustments that were published today.
Increased Penalties
The Internal Revenue Code imposes a host of penalties for failure to file returns, failure to furnish information returns, and failure to pay tax. These penalties affect individuals, companies, trusts, and estates. Congress recently tied several of the penalties to annual inflation adjustments and dramatically increased a few, raising the specter of increasing costs for noncompliance in future years.
Tax return preparers also are subject to a number of penalties that are adjusted for inflation. These 2016 projected penalty amounts are shown below. Projected amounts for other penalties are included in the full report.
|
Scenario |
Penalty Per Violation |
Calendar Year Maximum |
|
Failure to Furnish Copy to Taxpayer (Sec. 6695(a)) |
$50 |
$25,500 |
|
Failure to Sign Return (Sec. 6695(b)) |
$50 |
$25,500 |
|
Failure to Furnish Identifying Number (Sec. 6695(c)) |
$50 |
$25,500 |
|
Failure to Retain Copy or List (Sec. 6695(d)) |
$50 |
$25,500 |
|
Failure to File Correct Information Returns (Sec. 6695(e)) |
$50 |
$25,500 |
|
Negotiation of Check (Sec. 6695(f)) |
$510 |
No limit |
|
Failure to be Diligent in Determining Eligibility for Earned Income Credit (Sec. 6695(g)) |
$510 |
No limit |
Individual Income Tax Brackets
Because a higher Consumer Price Index pushes the definition of the brackets upward and also increases the standard deduction and exemption amounts, the taxes due on the same income decrease from year to year. For example, suppose married taxpayers filing jointly figure tax on $231,000. In 2015, they were in the 33% bracket and paid $51,759 in tax. In 2016, the brackets are adjusted for inflation, and they are now in the lower 28% bracket and will pay $51,665.50 in tax, "saving" $93.50 compared to 2015.
High-income taxpayers will enjoy a measure of relief in 2016 as well, because the top 39.6% tax bracket is projected to begin at $466,950 for married taxpayers filing joint returns and at $415,050 for unmarried individuals. This represents an increase from $464,850 and $413,200, respectively in 2015.
Bloomberg BNA has projected the 2016 income tax rate tables, shown below. The tables for other filing situations are included in Bloomberg BNA's full report.
Married Filing Jointly and Surviving Spouses
|
If Taxable Income Is: |
The Tax Is: |
|
Not Over $18,550 |
10% of the taxable income |
|
Over $18,550 but not over $75,300 |
$1,855 plus 15% of excess over $18,550 |
|
Over $75,300 but not over $151,900 |
$10,367.50 plus 25% of excess over $75,300 |
|
Over $151,900 but not over $231,450 |
$29,517.50 plus 28% of excess over $151,900 |
|
Over $231,450 but not over $413,350 |
$51,791.50 plus 33% of excess over $231,450 |
|
Over $413,350 but not over $466,950 |
$111,818.50 plus 35% of excess over $413,350 |
|
Over $466,950 |
$130,578.50 plus 39.6% of excess over $466,950 |
Unmarried Individuals (other than Surviving Spouses and Heads of Households)
|
If Taxable Income Is: |
The Tax Is: |
|
Not Over $9,275 |
10% of the taxable income |
|
Over $9,275 but not over $37,650 |
$927.50 plus 15% of excess over $9,275 |
|
Over $37,650 but not over $91,150 |
$5,183.75 plus 25% of excess over $37,650 |
|
Over $91,150 but not over $190,150 |
$18,558.75 plus 28% of excess over $91,150 |
|
Over $190,150 but not over $413,350 |
$46,278.75 plus 33% of excess over $190,150 |
|
Over $413,350 but not over $415,050 |
$119,934.75 plus 35% of excess over $413,350 |
|
Over $415,050 |
$120,529.75 plus 39.6% of excess over $415,050 |
Personal Exemption and Standard Deduction
Most taxpayers are entitled to claim a personal exemption deduction for each member of their household. For 2016, the personal exemption amount is projected to be $4,050, up from $4,000 in 2015. The personal exemption deduction is phased out for high-income taxpayers. The projected phase-out levels are available in the full report.
When calculating their deductions, taxpayers may choose to take the higher of their itemized deductions or the standard deduction. The standard deduction amount varies depending on filing status. The projected standard deduction amounts for 2016 are shown below.
|
Filing Status |
Standard Deduction |
|
Married Filing Jointly/Surviving Spouses |
$12,600 |
|
Heads of Household |
$9,300 |
|
All Other Taxpayers |
$6,300 |
Alternative Minimum Tax
For some taxpayers, inflation adjustments make the difference between having to pay AMT or not. The AMT exemptions were adjusted for inflation for the first time in 2013, and are projected for 2016 as shown below.
|
Filing Status |
Exemption Amount |
|
Married Filing Jointly/Surviving Spouses |
$83,800 |
|
Heads of Household |
$53,900 |
|
Unmarried Individuals (other than Surviving Spouses and Heads of Household) |
$41,900 |
|
Estates and Trusts |
$23,900 |
Estate and Gift Tax Exclusions
Bloomberg BNA projects that the estate tax basic exclusion for decedents dying in 2016 will be $5.45 million. The exclusion amount, which has been adjusted for inflation since 2012, was $5.43 million in 2015. The annual gift tax exclusion remains $14,000 in 2016.
The 2016 tax inflation projections are just one of the value-added features Bloomberg BNA provides taxpayers and the professionals who serve them.
