6 Tax Law Changes in 2016 to Plan For
The 2016 tax law changes are upon us, and to stay out of trouble with the IRS, it is crucial that you be aware of them so that you can plan your course of action. It is a good idea to check IRS documentation to find the specifics. However, we’ve put together a list of five tax changes you should be aware of for the New Year.
1. The Uninsured Will Be Penalized
Under Obamacare, also known as the Affordable Care Act, those who do not sign up for health insurance through the government exchanged via their employers or on their own will have to pay an extra tax. If you did not sign up for health insurance in 2015, then you will have to either pay 2 percent of your yearly income above the tax threshold or $695, whichever is higher. These penalties have ballooned from 2014 when the penalty was only one percent of household income or $95 per person.
2. Protection Against Tax Filing Identity Theft
The IRS has been experiencing an increasing number of identity thieves who file false returns to claim refunds. In fact, in 2015, over 100,000 accounts were hacked. Due to this, the IRS is investigating “device identification numbers” so that they will know when there have been multiple tax returns filed from a single computer. They are also looking into ways to authenticate tax filers’ identification when they are filing their return. This may mean an additional information supplement that needs to be filled out come tax filing.
3. Higher Taxes for the Wealthy
Figures shift within the tax code every year. On top of the deduction level changes, income thresholds for each tax bracket also tend to shift. This became even more significant in 2012 with the American Taxpayer Relief Act, which added a seventh income tax bracket that will be taxed 39.6 percent. This tax bracket has shifted in 2016 to include those that make $415,050 as an unmarried individual and $466,950 if married and filing joint returns. Additionally, those married but filing separately that make $233,475 and heads of households that make $441,000 will be included.
4. New Paperwork Required for Employers Under the Affordable Care Act
Besides an increase in a tax penalty for those without health insurance, there will also be new rules put in place for employer-required coverage. In 2014, the IRS used Form 1095-B and C as paperwork that was optional for employers. However, for the 2016 filing, this paperwork will now be considered mandatory. Large employers must fill out Form 1095-C. On top of this, smaller employers that are part of a group with a collective total of 50 employees or more must also file the 1095-C form.
5. New Tax Filing Date
It is not all bad news in the new tax law arena. Due to the way the tax calendar is set up, you will have a few more days to put together your paperwork and send it to the IRS. Due to the fact April 15, 2016 is considered an official holiday in the District of Colombia called Emancipation Day, taxpayers will have until April 18, 2015, to file their tax returns. Those residing in Massachusetts or Main will also get an extra day to accommodate Patriots Day and so won’t have to send in their returns until April 19, 2015.
6. Revival of Newly Expired Tax Breaks
Some popular tax breaks are expected to be made retroactive to January 1, 2015. These include letting people who are over the age of 70 ½ years make direct distributions of as much as $100,000 to a charity that is protected from the IRS. Moreover, itemizers will be given the option to deduct their state sales tax instead of their income tax. Homeowners will also be able to exclude their income of up to $2 million in forgiven debt. Lastly, there will be write-offs towards private mortgage insurance, as well as an up to $250 write-off for teachers’ class supplies.