Every year, tax laws change and 2016 will be no exception! We’ll be rounding up the most significant changes that you should be aware of for the next tax year, but first let’s start with what is not changing.
Tax brackets will stay the same for 2016 income with just a slight change in the taxable income levels due to adjustment for inflation. The 7 brackets are at the following percentages: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% and the following charts show what tax is due at each percentage based on your filing status.
Additionally, the amounts workers can add to 401Ks or similar retirement plans remains capped at $18,000 for anyone under 50 and $24,000 for workers who will turn 51 in 2016. For IRA contributions, those caps remain at $5,500 for younger workers and $6,500 for those 51 or older.
What changes will you be looking at for 2016 taxes?
First, penalties related to the Affordable Care Act will be going up again. If you are not covered by an employer’s health insurance plan and you do not purchase your own plan, you will owe a $695 penalty per adult + $347.50 per child under the age of 18 OR 2.5% of your household income (whichever is higher of these two amounts). The maximum penalty per household will be $2,085, compared to $975 from 2015. These fees apply to individuals whose income is higher than $10,150 for the year or couples whose joint income is higher than $20,300 and the fee will be owed for every month without qualifying health insurance.
The Standard Deduction for Heads of Households and the Personal Exemption are both going up by $50 for 2016, making the Standard Deduction $9,300 and the Personal Exemption $4,050. Additionally, the Earned Income Credit maximum will be slightly higher.
Family with three or more qualifying children: max credit = $6,269 (increase of $27).
Family with two qualifying children: max credit = $5,572 (increase of $24).
Family with one qualifying child: max credit = $3,373 (increase of $14).
Family with no children: max credit = $506 (increase of $3).
Some Health Savings Account contributions will also see a modest increase. Families can now contribute an extra $100 (making the maximum amount $6,750). Individual HSA contributions for individuals will not increase but will instead remain at $3,350.
If you qualify for the Alternative Minimum Tax, those exemption amounts will be going up as well ($300 for individuals and $500 for joint filers).
Finally, although this applies to 2015 taxes, it’s worth mentioning that the IRS will accept returns one day earlier than last year and your deadline to file will be three days later. January 19, 2016 is the first day you can file and this applies to any type of return (unlike the tiered system from previous years). Due to a holiday that falls on April 15, the deadline to file will now be Monday, April 18, 2016.
