New Tax Laws for 2016: What You Need to Know
Tax day for 2016 is approaching, and there are a few changes to expect in 2016 regarding tax law that you should be aware of when preparing your taxes. Here is what you need to know to ensure you’re heading into this year prepared.
Affordable Care Act Penalties: People without health insurance in 2016 will be hit with higher penalties. The maximum penalty will be the premium cost for the national average of the Bronze Plan listed on the federal health exchange, or $2,085. To avoid this penalty, you need to either be covered under a plan or obtain a plan in the first two months of 2016.
Deductions, Exemptions and Tax Breaks: In 2016, the personal exemption is estimated to be $4,050, which is $50 more than in 2015. However, for high-income earners, this deduction no longer exists. At the same time, the standard deduction has increased a bit for the head of the household.
Tax brackets that help you understand which class of taxpayer you belong to — and how much you owe — are pegged to inflation. For 2016, brackets are expected to increase by approximately 0.4 percent.
Health Savings Account Changes: If you have a Health Savings Account (HSA) and you have a family, then you can contribute an additional $100 this year for a max of $6,750. However, for individuals, nothing changes and your contribution amount will remain at $3,350.
Tax Day Changes: In 2016, April 15th tax due date falls on a Friday, which is also a federal holiday. This means the deadline is extended to April 18th. This means you have three more days to get to the post office, or if you are e-filing, you have until 11:59 p.m. on April 18th. Earned Income Credit Goes Up: The maximum tax credit you can earn under the Earned Income Credit is going up, but not by much. If you have three children that qualify, your maximum credit will increase by $27 to $6,269. With two children, you earn $24 more with a maximum at $5,572. One-child families can earn a maximum of $3,373, which is $14 more than in 2015. If you don’t have children, you can only earn an extra $3, which will land you $506.
Tax Cuts That Are Sticking Around: In addition, certain tax breaks that were expected to expire are going to be made permanent tax breaks. For example, the Educator Expense Deduction allows teachers to deduct $250 for classroom supplies that were never reimbursed. The IRA charitable transfer clause allows those who are age 70 and half or older to transfer $100,000 from their IRA to a charity tax-free.
Ultimately, tax bills are still moving through Congress, so keep your eyes peeled for additional changes to expect regarding new tax laws for 2016.