On October 30th, 2014, the Internal Revenue Service (IRS) announced the 2015 annual inflation adjustments for several provisions. Among other changes, the adjustments have led to changes in tax slabs, standard deductions and personal exemptions for all categories of taxpayers. Let's look at these changes in detail.
Individuals
| 2015 | 2014 |
|---|
| Taxable income | Tax | Taxable income | Tax |
|---|
| 0 - $9,225 | 10% of income | 0 - $9,075 | 10% of income |
| $9,226 - $37,450 | 15% of income above $9,225 + $922.5 | $9,076 - $36,900 | 15% of income above $9,075 + $907.5 |
| $37,451 - $90,750 | 25% of income above $37,450 + $5,156.25 | $36,901 - $89,350 | 25% of income above $36,900 + $5,081.25 |
| $90,751 - $189,300 | 28% of income above $90,750 + $18,481.25 | $89,351 - $186,350 | 28% of income above $89,350 + $18,193.75 |
| $189,301 - $411,500 | 33% of income above $189,300 + $46,075.25 | $186,351 - $405,100 | 33% of income above $186,350 + $45,353.75 |
| $411,501 - $413,200 | 35% of income above $411,500 + $119,401.25 | $405,101 - $406,750 | 35% of income above $405,100 + $117,541.25 |
| Above $413,201 | 39.6% of income above $413,200 + $119,996.25 | Above $406,751 | 39.6% of income above $406,750 + $118,118.75 |
Standard deductions for individuals:
Married Individuals who file returns separately
| 2015 | 2014 |
|---|
| Taxable income | Tax | Taxable income | Tax |
|---|
| 0 - $9,225 | 10% of income | 0 - $9,075 | 10% |
| $9,226 - $37,450 | 15% of income above $9,225 + $922.5 | $9,076 - $36,900 | 15% of income above $9,075 + $907.5 |
| $37,451 - $75,600 | 25% of income above $36,450 + $5,156.25 | $36,901 - $74,425 | 25% of income above $36,900 + $5,081.25 |
| $75,601 - $115,225 | 28% of income above $75,600 + $14,693.75 | $74,426 - $113,425 | 28% of income above $74,425 + $14,462.50 |
| $115,226 - $205,750 | 33% of income above $115,225 + $25,788.75 | $113,426 - $202,550 | 33% of income above $113,425 + $25,382.50 |
| $205,751 - $232,425 | 35% of income above $205,750 + $55,662 | $202,551 - $228,800 | 35% of income above $202,550 + $54,793.75 |
| Above $232,426 | 39.6% of income above $232,425 + $64,998.25 | Above $228,801 | 39.6% of income above $228,801 + $63,981 |
Standard deductions for married individuals who file returns separately:
Married Individuals who file returns jointly, and qualifying widowers
| 2015 | 2014 |
|---|
| Taxable income | Tax | Taxable income | Tax |
|---|
| 0 - $18,450 | 10% of income | 0 - $18,150 | 10% of income |
| $18,451 - $74,900 | 15% of income above $18,450 + $1,845 | $18,151 - $73,800 | 15% of income above $18,150 + $1,815 |
| $74,901 - $151,200 | 25% of income above $74,900 + $10,312.50 | $73,801 - $148,850 | 25% of income above $73,800 + $10,162.50 |
| $151,201 - $230,450 | 28% of income above $151,200 + $29,387.50 | $148,851 - $226,850 | 28% of income above $148,850 + $28,925 |
| $230,451 - $411,500 | 33% of income above $230,450 + $51,577.50 | $226,851 - $405,100 | 33% of income above $226,850 + $50,765 |
| $411,501 - $464,850 | 35% of income above $411,500 + $111,324 | $405,100 - $457,600 | 35% of income above $405,100 + $109,587.50 |
| Above $464,850 | 39.6% of income above $464,850 + $129,996.5 | Above $457,601 | 39.6% of income above $457,600 + $127,962.5 |
| | | |
Standard deductions for married individuals filing joint returns/qualifying widowers:
Heads of Households:
| 2015 | 2014 |
|---|
| Taxable income | Tax | Taxable income | Tax |
|---|
| 0 - $13,150 | 10% of income | 0 - $12,950 | 10% of income |
| $13,151 - $50,200 | 15% of income above $13,150 + $1,315 | $12,951 - $49,400 | 15% of income above $12,950 + $1,295 |
| $50,201 - $129,600 | 25% of income above $50,200 + $6,872.5 | $49,401 - $127,550 | 25% of income above $49,400 + $6,762.5 |
| $129,601 - $209,850 | 28% of income above $129,600 + $26,772.50 | $127,551 - $206,600 | 28% of income above $127,550 + $26,300 |
| $209,851 - $411,500 | 33% of income above $209,850 + $49,192.50 | $206,601 - $405,100 | 33% of income above $206,600 + $48,434 |
| $411,501 - $439,000 | 35% of income above $411,500 + $115,737 | $405,101 - $432,200 | 35% of income above $405,100 + $113,939 |
| Above $439,001 | 39.6% of income above $439,000 + $125,362 | Above $432,200 | 39.6% of income above $432,200 + $123,424 |
Standard deductions for heads of households:
Personal Exemptions: For all of the above categories of taxpayers, the personal exemption limit has been increased to $4,000 from $3,950. The personal exemption limit starts phasing out at Modified Adjusted Gross Income (MAGI) of $258,250 for individuals and $309,900 for married couples filing joint returns. This limit is phased out entirely at MAGI of $380,750 for individuals and $432,400 for married couples who file their returns jointly.
Let's look at an illustration of the revised tax slabs, standard deductions, and personal exemption limits.
Example 1: Let's say you are an individual with income of $195,000. Excluding a standard deduction of $6,300 and a personal exemption of $4,000, your revised income will be $184,700 ($195,000 - $10,300). You fall in the tax slab of between $90,751 and $189,300. Your federal tax payable will be 28% of income above $90,750 plus $18,481.25, which works out to $44,787.25 ($26,306 + $18,481.25).
In total IRS has posted over 40 updates related to annual inflation adjustments for 2015. You can find all of these updates here. Note that all these numbers will come into effect from January 1st, 2015. You can use these numbers in 2016, when you are filing the returns for the year 2015.
iCalculator's US Tax Calculator has been updated to include all of the above changes. Use the calculator to assess the impact of these changes.