Know Before You File: Tax Breaks for 2017

Here's how 2017 tax law changes will impact your 2018 return.

Tax returns for the 2016 tax year are due by April 18, but most taxpayers won’t owe the Internal Revenue Service anything at filing time. IRS statistics show that the vast majority of taxpayers get refunds each year, largely because the IRS offers numerous tax deductions, exemptions and credits to lower your tax bill.

Many of these tax breaks are indexed for inflation, which means they can change from year to year, because the IRS determines them in advance. For example, the IRS determined the changes affecting your 2016 tax return — which you will file in early 2017 — back in 2015.

To stay up to date on tax law changes affecting you during the 2017 calendar year and impacting your 2017 tax return, here’s a breakdown of key 2017 tax law changes.

Tax-Bracket Income Thresholds Have Increased

Each year, there are several tax law changes that impact your federal tax return. For example, the government adjusts the income thresholds that determine tax brackets annually. They’re typically hiked so you can earn more in subsequent years without moving into a higher tax bracket.

Make Your Money Work

Following are the limits that apply to your 2017 income for each filing status, as well as what they were in 2016 so you can compare. For example, you’ll see that if you’re married and filing jointly, you can earn $600 more in 2017 than you did in 2016 and still remain in the 15 percent tax bracket.

Married Filing Jointly (and Surviving Spouse)
Tax Rate 2017 Taxable Income 2016 Taxable Income
10% $0 – $18,650 $0 – $18,550
15% $18,651 – $75,900 $18,551 – $75,300
25% $75,901 – $153,100 $75,301 – $151,900
28% $153,101 – $233,350 $151,901 – $231,450
33% $233,351 – $416,700 $231,451 – $413,350
35% $416,701 – $470,700 $413,351 – $466,950
39.6% $470,701+ $466,951+
Unmarried Individuals (Other Than Surviving Spouses and Heads of Households)
Tax Rate 2017 Taxable Income 2016 Taxable Income
10% $0 – $9,325 $0 – $9,275
15% $9,326 – $37,950 $9,276 – $37,650
25% $37,951 – $91,900 $37,651 – $91,150
28% $91,901 – $191,650 $91,151 – $190,150
33% $191,651 – $416,700 $190,151 – $413,350
35% $416,701 – $418,400 $413,351 – $415,050
39.6% $418,401+ $415,051+
Head of Household
Tax Rate 2017 Taxable Income 2016 Taxable Income
10% $0 – $13,350 $0 – $13,250
15% $13,351 – $50,800 $13,251 – $50,400
25% $50,801 – $131,200 $50,401 – $130,150
28% $131,101 – $212,500 $130,151 – $210,800
33% $212,501 – $416,700 $210,801 – $413,350
35% $416,701 – $444,550 $413,351 – $441,000
39.6% $445,551+ $441,001+
Married Individuals Filing Separate Returns
Tax Rate 2017 Taxable Income 2016 Taxable Income
10% $0 – $9,325 $0 – $9,275
15% $9,326 – $37,950 $9,276 – $37,650
25% $37,951 – $76,550 $37,651 – $75,950
28% $76,551 – $116,675 $75,951 – $115,725
33% $116,676 – $208,350 $115,726 – $206,675
35% $208,351 – $235,350 $206,676 – $233,475
39.6% $235,351+ $233,476+

The Standard Deduction Has Increased

The tax code allows you to subtract the year’s standard deduction from your adjusted gross income. You have a choice between using the standard deduction and using itemized deductions. If itemizing puts more money in your pocket, you’re free to use that number instead by filing Schedule A with your tax return.

Regardless of which method you chose on your 2017 tax return — standard deduction or itemizing — using these deductions might help you drop down to a lower tax bracket if you’re right on the borderline of one of the above thresholds.

Make Your Money Work

The amount of the standard deduction you’re entitled to take each year is also indexed for inflation, and it will increase across the board in 2017. Here is how these deductions break down for 2017 compared to last year based on your filing status.

Standard Deduction Amounts
Filing Status 2017 2016 Increase
Married Filing Jointly (and Surviving Spouse) $12,700 $12,600 $100
Married Filing Separately $6,350 $6,300 $50
Single $6,350 $6,300 $50
Head of Household $9,350 $9,300 $50

Personal Exemption Phase-Out Limits Have Increased

You can also deduct a set amount for each of your dependents — as well as for yourself — from your income. These are called personal exemptions. The personal exemption from 2016 does not increase in 2017 and remains at $4,050.

It’s subject to a phase-out, however. This means that your personal exemptions decrease by 2 percent for each $2,500 that your adjusted gross income exceeds a certain threshold. They’re eliminated entirely — you can’t claim them — if your AGI exceeds the highest limit for your filing status.

These limits are also adjusted for inflation and have increased from 2016. For example, the beginning threshold is increased from $259,400 for individuals and $311,300 for married taxpayers filing jointly. Here are the thresholds for 2017.

Make Your Money Work
Personal Exemption Phase-Outs (Based on Adjusted Gross Income)
Filing Status AGI Range
Individual $261,500 – $384,000
Head of Household $287,650 – $410,150
Married Filing Jointly $313,800 – $436,300
Married Filing Separately $156,900 – $218,150

HSA Contributions Have Increased for Individuals

Contributions to a health savings account, also called an HSA, also can reduce your taxable income. The Internal Revenue Code allows you to contribute pretax dollars — income earned before your employer withholds taxes — to an HSA. Doing so decreases the amount of income upon which your withholding is based. The money you contribute can then be used to pay for qualified medical expenses.

“HSAs were created in 2003 so individuals covered by high-deductible health plans could receive tax-preferred treatment of money saved for medical expenses,” said Kristina Grasso, a master tax advisor with H&R Block.

Typically, you need to be enrolled in a high-deductible health plan to qualify for an HSA. “As long as you later use the HSA money to pay or reimburse yourself for permissible medical expenses, the distribution is tax-free,” Grasso said.

There’s a yearly limit to how much pretax income you can contribute. The limit for individuals goes up in 2017, but not by much — just $50, from $3,350 in 2016 to $3,400 this year.

Make Your Money Work

The limit remains at $6,750 for families, the same as last year. You can contribute an additional “catch-up” amount of $1,000 if you’re age 55 or older, a number that also has not changed from 2016.

The Earned Income Tax Credit Has Increased

The Earned Income Tax Credit is the government’s way of returning tax dollars to individuals and families with low to moderate incomes. It’s a refundable tax credit, which means that if it exceeds the taxes you owe, the IRS will send you a check for the balance. If you don’t owe any taxes, you receive the entire credit.

Qualifying for this credit depends on the number of child dependents you have, as well as on your filing status. Your income must fall below certain thresholds. Following are the thresholds for the 2017 tax year.

Earned Income and AGI Limits
Filing Status Qualifying Children Claimed
Zero One Two Three or More
Single, Head of Household or Widowed $15,010 $39,617 $45,007 $48,340
Married Filing Jointly $20,600 $45,207 $50,597 $53,930

In 2017, the maximum credit increases to:

  • $6,318 for taxpayers with three or more qualifying child dependents, up from $6,269 in 2016
  • $5,616 for taxpayers with two qualifying child dependents, up from $5,572 in 2016
  • $3,400 for taxpayers with one qualifying child dependent, up from $3,373 in 2016

Taxpayers with no children can qualify for a credit of $510, up from $506 in 2016.

Sometimes, new tax laws impact how and when you receive your refund. That’s true if you qualify for the Earned Income Tax Credit this year, as you can expect a slightly delayed refund. The Protecting Americans from Tax Hikes Act of 2015 restricts the IRS from issuing these refunds before Feb. 15, allowing the government time to investigate and ensure that all claims for the EITC are valid.

“A large part of the tax fraud that has taken place over the recent past has been by people claiming credits they were not entitled to,” said Enrolled Agent Dr. Steven J. Weil of RMS Accounting in Fort Lauderdale. “Expect more due diligence from the IRS this year.”

Dr. Weil said you should be ready to provide proof of dependency and your dependents’ Social Security numbers while the IRS checks to make sure you are entitled to the credit and that your claim is not fraudulent.

Tax Deductions 2017: 50 Tax Write-Offs You Don’t Know About

The Estate Tax Threshold Has Increased

The federal government also taxes the value of your property at the time of your death, but only if the estate exceeds specific thresholds, which are high. Your estate’s value must exceed $5.49 million in 2017 before estate taxes become due, an increase of 0.04 million from 2016 when the exemption was $5.45 million.

Up Next: Tax Mistakes Everyone Makes — and How to Avoid Them

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About the Author

Beverly Bird

Beverly Bird is a New Jersey-based writer specializing in personal finance and law. She has more than 30 years’ experience, including numerous published books. She offers personal finance workshops for single and divorced parents.

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