10 Important Income Tax Changes in 2016
The new year has begun and so has a new tax year. By understanding the latest changes in the tax code, you can better plan for this tax season and your 2016 financial goals. Here are 10 of the most important tax changes to be aware of this year:
- Tax Day Comes a Bit Later this Year
As April 15, 2016 falls on Emancipation Day (a recognized holiday in Washington, D.C.) and on a Friday, the deadline to file 2015 taxes is pushed back until Monday, April 18. In states that officially recognize Patriot’s Day, which falls on April 18 this year, the tax deadline is further delayed until Tuesday, April 19 this year.
- Tax Brackets Are Up
In order to adjust for inflation, most tax brackets are rising by approximately 0.4% in 2016. For a complete list of estimated 2016 tax brackets, standard deductions and alternative minimum tax rates, visit www.taxfoundation.org/article/2016-tax-brackets.
- Penalties for Not Having Qualified Healthcare Are Higher
Penalties for those not in compliance with the Affordable Care Act will rise to $695 per adult or 2.5% of one’s income in 2016. Family maximums apply, but the $2,085 price tag is more than double that of 2015, which was $975 in maximum penalties per family.
- Health Savings Accounts’ Contribution Limits Are Increasing
Health savings accounts help people offset the costs of high-deductible health plans by allowing them to set aside money on a pretax basis. 2016’s contribution limit remains unchanged for individual plans at $3,350; however, holders of family policies can now contribute up to $6,760, a $100 increase from last year. Those 55 and older can continue to contribute an additional $1,000 to their health savings accounts.
- Personal Exemptions Are Increasing
Taxpayers are getting a small bonus by way of personal exemptions this year. They can take an additional $50 in personal exemption for a total amount of $4,050.
- Standard Deductions Are Rising for Heads of Households
Single individuals, married couples filing jointly, and married couples filing separately that qualify as heads of households will see a $50 increase in their standard deductions for a total of $9,300 in 2016.
- Higher Exemptions from AMT
The alternative minimum tax (AMT) will affect a larger number of taxpayers in 2016. Single taxpayers will see an AMT exemption increase of $300 for a total of $53,900. Joint filers get a $500 increase for a total of $83,800.
- Estate Tax Exemptions Predicted to Rise
As inflation is projected to rise, the gift and estate tax’s lifetime exemption amount is projected to rise with it. The exemption amount will grow by $20,000 from last year for a total of $5.45 million in 2016. The new limit applies only to estates belonging to persons who pass away in the 2016 tax year.
- Earned Income Credit Is Increasing
There is a slight increase coming for the Earned Income Credit. If a taxpayer has three or more qualifying children, the maximum credit will increase by $27 for a total of $6,269. Taxpayers with two qualifying children will see an increase of $24 for a total of $5,572 and taxpayers with one child have a maximum credit of $3,373, up $14 from last year. Taxpayers without children can claim $506 for 2016.
- Laws Will Affect Other Tax Provisions if Not Renewed
Several popular tax breaks have yet to be renewed by lawmakers. These tax breaks include state sales tax deductions, charitable distribution from IRAs, educator’s write-offs for classroom materials, and other deductions. Lawmakers typically renew these tax breaks at the start of the year and are expected to do so again in early 2016.
While many things are not expected to change, it is important to be aware of the tax changes that may impact your taxes this year so there are no last-minute surprises when tax time arrives!