Tax Rates for Individuals
[© Copyright 1996. Merrill Lynch,
Pierce, Fenner & Smith Incorporated.]
Tax schedules and certain thresholds and
limits used to determine your tax liability are indexed
annually for inflation.
The 1996 figures are as follows:
- Tax rates
- There are currently five tax
brackets -- 15%, 28%, 31%, 36% and 39.6%.
The 36% rate applies to taxable income
over $147,700 (joint), $121,300 (single),
$134,500 (heads of household) and $73,850
(married, filing separately). The 39.6%
rate results from a 10% surtax on taxable
income over $263,750 ($131,875 for
married persons filing separately). The
1996 limits for the tax brackets have
been increased for inflation by less than
3%. So on joint returns, for example, the
28% rate won't apply until taxable income
exceeds $40,100 vs. $39,000 in 1995, and
the 31% rate won't apply until taxable
income exceeds $96,900 vs. $94,250 in
minimum tax (AMT).
- There is a two-tiered graduated
rate schedule: 26% on AMT income (AMTI)
up to $175,000 (over an exemption amount)
and 28% on any additional AMT income.
(See question 57.)
on itemized deductions.
- For 1996, itemized deductions
(other than medical expenses, casualty
and theft losses, and investment interest
expenses) are reduced by three percent of
the amount by which the taxpayer's
adjusted gross income exceeds $117,950
($58,975 for married taxpayers filing
separately). The reduction cannot exceed
80% of the taxpayer's itemized deductions
(excluding those listed above).
- Phase out of personal exemptions.
- In 1996, the amount that may be
claimed for personal exemptions is phased
out as adjusted gross income (AGI)
exceeds $176,950 for married taxpayers
filing joint returns, $117,950 for single
taxpayers, $147,450 for heads of
household and $88,475 for married
taxpayers filing separately. Each
exemption is reduced by two percent for
each $2,500 (or fraction thereof) of AGI
in excess of these threshold amounts.
- Up to $9,500 can be contributed
on a pretax basis in 1996, to 401(k)
plans and SEPs that offer a
- In 1996, the FICA tax rate of
7.65% for both employers and employees is
on the first $62,700 of taxable wages.
The self-employment tax rate of 15.3% is
on the first $62,700 of net earnings for
- The Medicare component of the
FICA tax of 1.45% (paid by both employees
and employers) applies to all FICA wages
beyond the $62,700 Social Security wage
base. The rate for self-employed
individuals is 2.9%.
of Social Security benefits.
- For 1996, the maximum percentage
of Social Security benefits subject to
tax is 85% for "provisional
income" in excess of $44,000 for
married couples filing jointly and
$34,000 for single filers. For most
people, "provisional income" is
adjusted gross income plus one-half of
Social Security benefits plus all
- Limits on
contributions to qualified retirement plans.
- The maximum compensation level to
be considered in making qualified
retirement plan contributions is $150,000
- Estimated tax rules have been
simplified from those in effect before
1994. Currently, penalties can be avoided
by basing estimated tax payments on:
- 90% of the current year's
- 100% of the prior year's
tax if adjusted gross income is
$150,000 or less, or
- 110% of the prior year's
tax if adjusted gross income is