New Tax Brackets
For 2017, there will be some adjustment to the tax brackets for inflation. Pay attention to the differences between 2016’s tax brackets and 2017’s tax brackets below:
The standard deduction for single taxpayers and married couples filing separately is $6,350 in 2017. This is an increase from $6,300 in 2016. For heads of households, the standard deduction is $9,350 for 2017.
For 2017, the additional standard deduction amount for the aged or the blind is $1,250. This amount is increased to $1,550 if the individual is unmarried and is not a surviving spouse. Although this change won’t give you a big reduction in your tax liability, anything that can reduce it is always welcome.
Personal Exemption Remains the Same
The personal exemption amount for 2017 is $4,050, the same as 2016. However, a phase-out begins at adjusted gross incomes of $261,500 and ends at $384,000 for individuals will go into effect. These is because personal exemptions are eliminated in discrete steps based on the exact amount by which your adjusted gross income exceeds the threshold amounts that are applied according to your filing status.
For calendar year 2017, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695. The fee is calculated 2 different ways – as a percentage of your household income, and per person. You’ll pay whichever is higher up to a maximum of $2,085. You pay the fee when you file your federal tax return for the year you don’t have coverage.
If you don’t pay the fee, the IRS will hold back the amount of the fee from any future tax refunds. There are no liens, levies, or criminal penalties for failing to pay the fee.
Payroll Tax Changes
Most 1099 contractors are responsible for paying self-employment taxes. As a result, there are a some payroll tax updates that you should pay attention to in 2017.
Social Security / Medicare
The wage base, which is the maximum amount of your earnings that is subject to the Social Security payroll tax, increases to $127,200 for Social Security. The Medicare tax rate for 2017 is 1.45% and the wage base remains unlimited for Medicare. For Social Security, the 2017 tax rate is unchanged at 6.20% for both employers and employees.
Federal Unemployment Tax (FUTA)
The wage base for FUTA remains at $7,000. The effective tax rate for 2017 is 0.6%.
While the information about these tax changes is being made available in 2017, keep in mind that these changes will apply to your tax preparation for 2018, not 2017. As to concerns about the changes to the tax code as proposed by President Trump during his campaign, a lot of these changes would not go into effect until 2018, since the 2017 tax changes have already been established.
In addition to the changes from the IRS, you will also need to review the 2017 tax changes for your state. Since these recommendations are general ones, you should check with a CPA to make sure that you’ve covered all of the changes that will affect you in 2018.