United States

1.1.2.1. Standard reliefs

• Basic reliefs: In 2016 a married couple filing a joint tax return is entitled to a standard deduction of USD 12 600. The standard deduction is USD 9 300 for heads of households and USD 6 300 for single individuals. This relief is indexed for inflation. More liberal standard deductions are available for taxpayers who are age 65 or older and taxpayers who are blind. Special rules apply to children who have sufficient income to pay tax and are also claimed as dependents by their parents.

• In addition to the standard deduction, in 2016 a USD 4 050 personal exemption is given to every taxpayer (including both husband and wife filing a joint return). The personal exemption is indexed annually for inflation. In 2016, there is a phase out for personal exemptions.

• Personal exemption phase out: Personal exemptions are phased out in 50 steps for taxpayers with incomes in excess of certain amounts. All of a taxpayer’s exemptions are phased out simultaneously. For each USD 2 500 or fraction thereof by which income exceeds the beginning of the phase out range, personal exemptions are phased down by two percentage points.

• Standard marital status reliefs: Married couples generally benefit from a more favourable schedule of tax rates for joint returns of spouses (see Section 1.1.3). There are no other general tax reliefs for marriage.

• Relief for children: For each child and other person claimed as a dependent on a taxpayer’s return, the taxpayer is entitled to a personal exemption of USD 4 050 in 2016. Low income workers with dependents are allowed a refundable (non-wastable) earned income credit. For taxpayers with one child, the credit is 34% of up to USD 9 920 of earned income in 2016. The credit phases down when income exceeds USD 18 190 (23 740 for married taxpayers) and phases out when it reaches USD 39 296 (44 846 for married taxpayers). The earned income threshold and the phase-out threshold are indexed for inflation. For taxpayers with two children, the credit is 40% of up to USD 13 930 of earned income in 2016. The credit phases down when income exceeds USD 18 190 (23 740 for married taxpayers) and phases out when it reaches USD 44 648 (50 198 for married taxpayers). For taxpayers with three or more children the credit is 45% of up to USD 13 930 of earned income. The credit phases down when income exceeds USD 18 190 (23 740 for married taxpayers) and phases out when it reaches USD 47 955 (53 505 for married taxpayers).

• Since 1998, taxpayers are permitted a tax credit for each qualifying child under the age of 17. In 2016 the maximum credit is USD 1 000. The maximum credit is reduced for taxpayers with income in excess of certain thresholds. The credit is reduced by USD 50 for each USD 1 000 of income in excess of USD 110 000 for married taxpayers (USD 75 000 for single and head of household taxpayers). These threshold amounts are not indexed for inflation. The child credit is refundable (non-wastable) to the extent of 15% of earned income in excess of USD 3 000. A taxpayer with three or more qualifying children may be allowed a supplemental refundable (non-wastable) child credit, subject to certain restrictions. The refundable credit is the excess of the taxpayer’s share of social security (including Medicare) taxes over his earned income tax credit for the year not used to offset income tax liability.

• Relief for low income workers without children: In 1994 and thereafter, low income workers without children are eligible for the earned income credit. In 2016 low income workers without children are permitted a non-wastable earned income credit of 7.65% of up to USD 6 610 of earned income. The credit phases down when income exceeds USD 8 270 (13 820 for married taxpayers) and phases out when income reaches USD 14 880 (20 430 for married taxpayers). This credit is available for taxpayers at least 25 years old and under 65 years old.

• Relief for social security and other taxes. In 2016, the withholding rate for Social Security taxes for employees is 6.2%. The earned income credits described above are sometimes considered an offset to social security contributions made by eligible employees. Furthermore, only a portion of social security benefits are subject to tax.

1.1.2.2. Main non-standard reliefs applicable to an AW

• The basic non-standard relief is the deduction of certain expenses to the extent that, when itemised, they exceed in aggregate the standard deduction. For the purposes of this Report, it is assumed that workers claim the standard deduction. The principal itemised deductions claimed by individuals where the standard deduction is not being claimed are:

• Medical and dental expenses that exceed 10% of income (7.5% for taxpayers age 65 and over);

• State and local income taxes, real property taxes, and personal property taxes. Home mortgage interest;

• Investment interest expense up to investment income with an indefinite carry forward of disallowed investment interest expense;

• Contributions to qualified charitable organisations (including religious and educational institutions);

• Casualty and theft losses to the extent that each loss exceeds USD 100 and that all such losses combined exceed 10% of income; and

• Miscellaneous expenses such as non-reimbursed employee business expenses (union dues, work shoes, etc.), investment expenses, tax return preparation fees and educational expenses required by employment, to the extent that, in aggregate; they exceed 2% of income.

• In 2013, the most recent year for which such statistics are available, the 42% of taxpayers with income between USD 50 000 and USD 75 000 (the AW range) who itemised their deductions claimed average deductions as follows: medical expenses, USD 9 334; taxes paid, USD 5 472; charitable contributions, USD 2 863; interest expense, USD 7 327.

• Contributions to pension and life insurance plans. No relief is provided for employee contributions to employer sponsored pension plans or for life insurance premiums. However, tax relief is provided for certain retirement savings.