2017 Federal Tax Update. Part 1 – Individuals
The Internal Revenue Service has recently released Rev. Proc. 2016-55 which is setting forth the cost-of-living adjustments in effect for 2017 tax year. We have compiled the most common individual income tax provisions and contrasted them to the 2016 limits enumerated in Rev. Proc. 2015-53.
Notably, the 2017 personal exemption remains unchanged at $4,050. However, the 2017 standard deduction increases for all filing statuses. The additional standard deduction for old age or blindness remains at $1,550 for unmarried and $1,250 for married taxpayers. The maximum $1,050 standard deduction for dependents applies to both 2016 and 2017 tax years.
| Tax Provision | I.R.C § | 2016 Tax Year | 2017 Tax Year | Notes |
| Personal Exemption | § 151(d) | $4,050 | $4,050 | No change |
| Standard Deduction –Single/MFS | § 63(c)(2) | $6,300 | $6,350 | Increase |
| Standard Deduction- MFJ | § 63(c)(2) | $12,600 | $12,700 | Increase |
| Standard Deduction- HH | § 63(c)(2) | $9,300 | $9,350 | Increase |
| Additional Standard Deduction | § 63(f) | $1,250/$1,550 | $1,250/$1,550 | Old Age/Blindness |
| Standard Deduction for dependents | § 63(c)(5) | $1,050 | $1,050 | Maximum amount |
Most “above-the-line” deductions allowed to arrive at adjusted gross income receive no boost in 2017. However, the dollar limitations used to compute benefits and contributions under the various qualified retirement plans were indexed for inflation. Expect a breakdown of all dollar limitations in Part 3 of the update.
| Tax Provision | I.R.C § | 2016 Tax Year | 2017 Tax Year | Notes |
| Qualified Educator Expenses | § 62(a)(2)(D) | $250 | $250 | No change |
| IRA contribution limit | § 63(c)(2) | $5,500 | $5,500 | No change |
| Catch-up IRA contributions | § 63(c)(2) | $1,000 | $1,000 | No change |
| Student Loan Interest Deduction | § 221 | $2,500 | $2,500 | No change |
| Tuition & Fees Deduction | § 222 | $4,000 | $4,000 | Maximum amount |
| Health Savings Account (HSA) | § 223 | $3,350 / $6,750 | $3,350 / $6,750 | Single / Family coverage |
Section 101 of the PATH Act of 2015 made permanent the earned income threshold of $3,000, which is used to compute the refundable portion of the Child Tax Credit. The enhanced American Opportunity Tax Credit was made permanent under Section 102 of the PATH Act of 2015. The Adoption Tax Credit and the maximum Earned Income Tax Credit were indexed for inflation.
| Tax Provision | I.R.C § | 2016 Tax Year | 2017 Tax Year | Notes |
| Adoption Credit | § 23(a)(3) | $13,460 | $13,570 | Increase |
| Child Tax Credit | § 24(d)(1)(B)(i) | $3,000 | $3,000 | Made permanent |
| American Opportunity Credit (Hope Credit) | § 25A(b)(1) | $2,050 | $2,050 | Made permanent |
| Lifetime Learning Credit | § 25A(c)(1) | $2,000 | $2,000 | Maximum credit allowable |
| Earned Income Credit | § 32(b)(3)(B)(i) | $6,269 | $6,318 | Maximum credit allowable |
Some of the tax provisions that relate to expatriates and Americans abroad also increase. Traditionally, the 2017 Foreign Earned Income Exclusion (FEIE) was indexed for inflation. The Foreign Housing Exclusion is a fixed percentage of the FEIE and is further on revised annually for high-cost locations.
| Tax Provision | I.R.C § | 2016 Tax Year | 2017 Tax Year | Notes |
| Foreign Earned Income Exclusion (FEIE) | § 911(b) | $101,300 | $102,100 | Increase |
| Foreign Housing Exclusion (FHE) | § 911(c) | $16,208 | $16,336 | 16% of FEIE; varies per location |
Finally, the permanent expatriation thresholds applicable to citizens and long-term permanent residents who renounce citizenship or abandon residency have also changed. The increase applies to the average net income tax used to determine when a taxpayer is a "covered expatriate" and the taxable income exemption under Section 877A.
| Tax Provision | I.R.C § | 2016 Tax Year | 2017 Tax Year | Notes |
| Average annual net income tax | § 877(a)(2)(A) | $161,000 | $162,000 | Covered expatriate status |
| Covered expatriate taxable income exclusion | § 877A(a)(1) | $693,000 | $699,000 | Increase |