Call Now :(855) 549-7829
Se Habla Espanol

Tax Changes in 2016

In order to make end of the year tax adjustments, especially concerning income, it is important to know about 2016 tax brackets. Each year, tax brackets are adjusted for inflation. Since inflation has been minimal in 2015, there will be only minor changes in the 2016 tax brackets. So, if you do not expect your income to rise or fall in the next year, you are likely to pay taxes at the same tax rate.

2016_Tax_ChangesA major tax change in 2016 that may be impactful to you is the Affordable Care Act penalty. There is a considerable increase of the cost for the penalty next year. The Motley Fool examines this and the other tax changes that may affect you in 2016:

“2016 tax brackets have changed slightly

“Due to a lack of inflation, the 2016 tax brackets haven’t changed tremendously from 2015. However, they have been adjusted slightly upward — by about 0.5%.

“In addition, the personal exemption amount has been increased by $50 to $4,050. As far as standard deduction amounts are concerned — the deductions used by taxpayers who choose not to itemize — all but one remains the same as last year.

“The slight increases in the tax brackets and exemptions should result in the average family’s tax liability falling by a few dollars. However, keep in mind that the idea behind increasing the tax brackets annually is to compensate for inflation, which (theoretically) translates to higher wages. So, the increases should produce no net effect in tax liability for a family whose income has risen at the same rate as the tax brackets, deductions, and exemptions.

“One major change you need to know about
“By far the biggest 2016 tax change is the Affordable Care Act penalty for not maintaining adequate health coverage throughout the year. As you can see from the chart below, the increase for 2016 is quite high.

Tax Year Individual Penalty Or… (If Greater) Family Maximum
2014 $95 per adult 1% of income above the filing threshold $285
2015 $285 per adult 2% of income above the filing threshold $975
2016 $695 per adult 2.5% of income above the filing threshold $2,085
“Now, this may seem confusing, so if you’re curious about how much your penalty could be, the website taxpolicycenter.org has a calculator that can help you estimate yours.
“Other notable 2016 tax changes

“There are a few other tax changes for 2016, and all of these are small inflationary adjustments, just as we saw with the tax brackets.

  • Families can now contribute up to $6,750 to a health savings account (HSA), an increase of $100 over 2015. However, the individual contribution limit of $3,350 remains the same.
  • The maximum earned income tax credit (EITC) has increased slightly for 2016.
  • The alternative minimum tax (AMT) exemption has risen to $53,900 and $83,800 for single and joint filers, respectively. This represents an increase of $300 (single) and $500 (joint) from 2015.
  • The lifetime estate tax exemption rises by $20,000 to $5.45 million for 2016.
  • Some of the income thresholds having to do with retirement contributions have been increased, although all contribution limits remain the same.

“The biggest tax changes could be yet to come
“There are a few tax breaks that expired at the end of last year, which have not yet been renewed. This includes such popular items as state sales tax deductions, educator expenses, and the mortgage insurance deduction. As of this writing, these have not been renewed, but it’s likely they will be extended for the 2016 tax year or beyond.”