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2016 Tax Brackets
By Kyle Pomerleau
Economist
Oct. 2015
No. 486
Introduction
Every year, the IRS adjusts more than 40 tax provisions for inflation. This is done
to prevent what is called “bracket creep.” This is the phenomenon by which people
are pushed into higher income tax brackets or have reduced value from credits or
deductions due to inflation, instead of any increase in real income.
The IRS uses the Consumer Price Index (CPI) to calculate the past year’s inflation
and adjusts income thresholds, deduction amounts, and credit values accordingly.
Rather than directly adjusting last year’s values for annual inflation, each provision is
adjusted from a specified base year. For more information, see Methodology, below.
Estimated Income Tax Brackets and Rates
In 2016, the income limits for all brackets and all filers will be adjusted for inflation
and will be as follows (Table 1). The top marginal income tax rate of 39.6 percent will
hit taxpayers with adjusted gross income of $415,050 and higher for single filers and
$466,950 and higher for married filers.
Table 1.
2016 Taxable Income Brackets and Rates (Estimate)
Rate
Single Filers
Married Joint Filers
Head of Household Filers
10%
$0 to $9,275
$0 to $18,550
$0 to $13,250
15%
$9,275 to $37,650
$18,550 to $75,300
$13,250 to $50,400
25%
$37,650 to $91,150
$75,300 to $151,900
$50,400 to $130,150
28%
$91,150 to $190,150
$151,900 to $231,450
$130,150 to $210,800
33%
$190,150 to $413,350
$231,450 to $413,350
$210,800 to $413,350
35%
$413,350 to $415,050
$413,350 to $466,950
$413,350 to $441,000
39.6%
$415,050+
$466,950+
$441,000+
Source: Author’s Calculations.
2
Standard Deduction and Personal Exemption
The standard deduction for single filers will not increase in 2016 (Table 2). For married
couples filing jointly, it will increase by $50 from $12,600 to $12,650.
The personal exemption for 2015 will be $4,050.
Table 2.
2016 Standard Deduction and Personal Exemption (Estimate)
Filing Status
Deduction Amount
Single
$6,300.00
Married Filing Jointly
$12,650.00
Head of Household
$9,300.00
Personal Exemption
$4,050.00
Source: Author’s Calculations.
PEP and Pease
PEP and Pease are two provisions in the tax code that increase taxable income for high-
income earners. PEP is the phase-out of the personal exemption and Pease (named after
former Senator Donald Pease) reduces the value of most itemized deductions once a
taxpayer’s adjusted gross income reaches a certain amount.
The income threshold for both PEP and Pease will be $259,400 for single filers and
$311,300 for married filers (Tables 3 and 4). PEP will end at $381,900 for singles and
$433,800 for married couples filing jointly, meaning these taxpayers will no longer have a
personal exemption.
Table 3.
2016 Pease Limitations on Itemized Deductions (Estimate)
Filing Status
Income
Single
$259,400.00
Married Filing Jointly
$311,300.00
Head of Household
$285,350.00
Source: Author’s Calculations.
Table 4.
2016 Personal Exemption Phase-Out (Estimate)
Filing Status
Phase-Out Begin
Phase-Out Complete
Single
$259,400.00
$381,900.00
Married Filing Jointly
$311,300.00
$433,800.00
Head of Household
$285,350.00
$407,850.00
Source: Author’s Calculations.
3
Alternative Minimum Tax
Since its creation in the 1960s, the Alternative Minimum Tax (AMT) has not been adjusted
for inflation. Thus, Congress was forced to “patch” the AMT by raising the exemption amount
to prevent middle class taxpayers from being hit by the tax as a result of inflation.
On January 2, 2013, the American Taxpayer Relief Act of 2012 indexed the income
thresholds to inflation, preventing the necessity for an annual “patch.”
The AMT exemption amount for 2016 is $53,900 for singles and $83,800 for married
couples filing jointly (Table 5).
Table 5.
2016 Alternative Minimum Tax Exemptions (Estimate)
Filing Status
Exemption Amount
Single
$53,900.00
Married Filing Jointly
$83,800.00
Married Filing Separately
$41,900.00
Source: Author’s Calculations.
Earned Income Tax Credit
2016’s maximum Earned Income Tax Credit for singles, heads of households, and joint filers
is $506, if the filer has no children (Table 6). The credit is $3,373 for one child, $5,572 for
two children, and $6,268 for three or more children.
Table 6.
2016 Earned Income Tax Credit Parameters (Estimate)
Filing Status
No Children One Child Two Children Three or More Children
Single or Head of Household
Income at Max Credit
$6,610
$9,920
$13,930
$13,930
Maximum Credit
$506
$3,373
$5,572
$6,268
Phase out Begins
$8,270
$18,190
$18,190
$18,190
Phase out Ends (Credit Equals Zero)
$14,880
$39,296
$44,648
$47,955
Married Filing Jointly
Income at Max Credit
$6,610
$9,920
$13,930
$13,930
Maximum Credit
$506
$3,373
$5,572
$6,268
Phase out Begins
$13,810
$23,730
$23,730
$23,730
Phase out Ends (Credit Equals Zero)
$20,420
$44,836
$50,188
$53,495
Source: Author’s Calculations.
4 Methodology
Each tax parameter is adjusted for inflation by taking its base value (from legislation) and
multiplying it by the current fiscal year’s average Consumer Price Index (CPI) and then
dividing that by the base fiscal year’s CPI.
Each parameter is rounded to either the nearest $10, $25, or $100 (depending on the
specified rounding method in the legislation, see Table 7).
For example, the base value for the top of the 10 percent tax bracket for singles is $7,000.
This number is multiplied by the average CPI for fiscal year 2016 (236.749) and then divided
by the average CPI for fiscal year 2002 (178.675): $7,000 x (236.749/178.674) = $9,275.18.
This value is then rounded down to the nearest $25 to yield 2016’s 10 percent tax bracket
of $9,275.
Table 7.
Tax Parameters, Base Years, and Base Values
Base Year
Parameter
Base Value (Single; HoH; Married)
Rounding Convention
1987
Standard Deduction
$3,000; $4,400; $6,000
Down to nearest $50
1988
Personal Exemption
$2,000
Down to nearest $50
1992
15% Bracket
$22,100; $29,600; $44,200
Down to nearest $50
25% Bracket
$53,500; $76,400; $89,150
Down to nearest $50
1993
28% Bracket
$115,000; $127,500; $140,000
Down to nearest $50
33% Bracket
$250,000; $250,000; $250,000
Down to nearest $50
1995
EITC
See Table 8, below
Nearest $10, for thresholds.
Nearest $1, for credit amount.
2002
10% Bracket
$7,000; $10,000; $14,000
Down to nearest $25
2008
EITC Marriage Penalty Fix
$5,000
Nearest $10
2011
AMT
$50,600, N/A, $78,750
Nearest $100
2012
35% Bracket
$400,000; $425,000; $450,000
Down to nearest $50
PEP
$250,000; $275,000; $300,000
Down to nearest $50
Pease
$250,000; $275,000; $300,000
Down to nearest $50
Note: Bracket values are the tops of each bracket.
Table 8.
EITC Base Parameters
No Children
One Child
Two Children
Three or More Children
Credit Rate
7.65%
34%
40%
40%
Phase-Out Rate
7.65%
15.98%
21.06%
21.06%
Income, Max Credit
$4,220
$6,330
$8,890
$8,890
Income, Phase-Out
$5,280
$11,610
$11,610
$11,610