Tax time is nearly upon us again, and 2016 will bring some tax changes you need to know about before you complete the required tax forms this year.
By learning about them before the new year is already a quarter of the way done, and before making a payment, it would be wise to learn the steps for this year and the coming years.
Here are the 7 biggest tax changes you should know about going into 2016 that will be in effect on the first tax day.
The first tax day of 2016 is April 18: the Washington, D.C., holiday of Emancipation Day is on Friday, April 15, 2016. Under federal law, the tax deadline gets extended when it falls on a holiday or weekend, and so the tax deadline for most taxpayers will be the following Monday, April 18.
For those states in New England that celebrate Patriot’s Day, an even later April 19 deadline will apply.
Tax penalties related to Obamacare are going up again: the Affordable Care Act imposed penalties for those not having qualifying health care coverage.
According to Bloomberg, those penalties started at $95 per adult, or 1 percent of income above the filing threshold in 2014, but they rose to $285 per adult, or 2 percent of income above the filing limit in 2015.
For 2016, penalties will rise again, hitting $695 per adult, or 2.5 percent of income.
A family maximum will apply to the per-person amount, but the $2,085 amount will be substantially higher than the $975 in 2015, and the $285 in 2014 reported Bloomberg.
Tax brackets are rising slightly: most of the tax brackets that govern different classes of taxpayers are adjusted for inflation. For 2016, these bracket amounts are rising by roughly 0.4 percent.
Standard deductions are going up for head-of-household filers. The current low inflation rate kept standard deductions for most taxpayers steady in 2016 from 2015 levels, including the single, married filing jointly, and married filing separately statuses.
For those who qualify as heads of household, the standard deduction will rise $50 to $9,300 in 2016 reported Bloomberg.
Personal exemptions are rising: the personal exemption that taxpayers are entitled to take on their tax returns will go up by $50 in 2016. That will give everyone an exemption amount of $4,050.
Contribution limits on health savings accounts are going up: Health savings accounts let people with high-deductible health plans set money aside on a pretax basis to cover the costs of their health care.
For 2016, the contribution limit for individual policies will remain at $3,350, but the maximum contribution for family policies will rise by $100 to $6,750.
In addition, a catch-up contribution of $1,000 for those 55 or older will continue to apply.
The Earned Income Credit is rising: the maximum allowable Earned Income Credit will go up modestly in 2016 compared to the past five years.
For those with three or more qualifying children, the maximum credit will rise to $6,269, up $27.
Bloomberg also reported that those with two children will get a maximum $5,572, which is up $24 from 2015, while one-child families can get up to $3,373, $14 more than last year. Those without children get just a $3 bump and can claim up to $506 for 2016.