2016 Tax Law Changes You Need To Know About

2016 tax law changes you need to know
2016 tax law changes you need to know
2016 tax law changes you need to know
2016 tax law changes you need to know

After the giant ball drops in Times Square to signify a new year, the IRS is notorious for making some adjustments to the federal tax code. Some years have brought significant change, while other years remain very similar to previous years. For tax year 2016, there are some expected changes, but not much is dramatically different from tax year 2015.

Here is an overview of the most important 2016 tax law changes you need to know about:

Tax penalties for the Affordable Care Act have increased.

In 2014, the federal government started levying tax penalties through the Affordable Care Act for those without qualifying health insurance. These tax penalties started at $95 per adult, or 1% of income above the filing threshold. In 2015, they quickly rose to $285 per adult, or 2% of income above the filing limit. For 2016, the penalties are undergoing a dramatic increase. They are $695 per adult, or 2.5% of income. There is a family maximum penalty that applies to the per-person amount, and this penalty is now $2,085.

Tax brackets have gone up slightly.

For 2016, the federal income tax bracket amounts have increased by about 0.4%. The top marginal income tax rate of 39.6 percent will now be levied on taxpayers whose adjusted gross income (AGI) is $415,050 or higher for single filers and $466,950 or higher for married filers.
The standard deduction for head-of-household taxpayers has increased.
Thanks to the low inflation rate, the standard deductions for taxpayers who choose to file as single and married-filing-jointly remain unchanged for 2016. But if you qualify as a head-of-household tax filer, the standard deduction has gone up $50 to $9,300 for 2016.

The personal exemption has gone up.

The personal exemption that taxpayers can take on their income tax returns has gone up by $50 for 2016. This means the new personal exemption amount is set at $4,050.

Health savings account contribution limits have increased.

A health savings account is designed to allow individuals with high-deductible health plans to set aside money on a pretax basis to help cover their healthcare expenses. For 2016, the contribution limit on individual policies remains at $3,350. However, the maximum contribution for family policies has increased by $100 to $6,750. The so-called “catch-up contribution” of $1,000 for individuals who are 55 and older remains unchanged.

The Earned Income Tax Credit (EITC) value has gone up.

In 2016, the maximum allowable Earned Income Tax Credit (EITC) has gone up slightly. For taxpayers who have 3 or more qualifying children, the maximum credit has risen to $6,269. Taxpayers with 2 children are eligible for a maximum $5,572. Families with only one child can get up to $3,373. Those with no children can claim up to $506.

The estate tax exemption is now higher.

The lifetime exemption amount for what is known as the gift and estate tax is based on inflation. As such, it has increased in 2016. The exemption amount has spiked to $5.45 million. This amount is up $20,000 from 2015. The limit applies to the estates of individuals who pass away in 2016.

The standard mileage rate for business use of a vehicle has decreased.

In 2015, the standard mileage rate for self-employed individuals who use a personal vehicle for business trips was 57.5 cents per mile. For tax year 2016, the standard mileage rate has dropped to 54 cents per mile. This is the lowest the rate has been in several years and is likely due to lower gas prices. (See this article to learn about the other standard mileage rates for 2016.)

Ensure you are following all of the 2016 IRS and state tax laws by teaming up with the CPAs at 1-800Accountant. Call 1-800-222-6868 or check out www.1-800Accountant.

0 Comments

Leave your comment