Every year it seems that Federal lawmakers make changes to the tax code. This year is no exception. Below are some of the tax changes that could affect you. Be sure to consult with your tax advisor to better understand and plan for these changes.
Tax penalties related to Obamacare are rising – The Affordable Care Act imposed penalties for those not having qualifying healthcare coverage. Those penalties started at $95 per adult, or 1% of income above the filing threshold in 2014, but they rose to $285 per adult, or 2% of income above the filing limit in 2015. For 2016, penalties will rise again, hitting $695 per adult, or 2.5% of income above the filing threshold. A family maximum will apply to the per-person amount, but the $2,085 amount will be substantially higher than the $975 in 2015.
Standard deductions and personal exemptions are going up – The 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. The personal exemption that taxpayers are entitled to take on their tax returns will go up in value by $50 in 2016. That will give everyone an exemption amount of $4,050.
Contribution limits on health savings accounts go up – Health savings accounts let people with high-deductible health plans set money aside on a pre-tax basis to cover the costs of their healthcare. 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. A catch-up contribution of $1,000 for those 55 or older will continue to apply.
The Earned Income Credit goes up – The maximum allowable Earned Income Credit will go up modestly in 2016. For those with three or more qualifying children, the maximum credit will rise to $6,269, up $27. 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.
The exemption from AMT and the estate tax exemption are higher – The alternative minimum tax (AMT) has impacted a growing number of taxpayers, making the exemption amount more important than ever. Single taxpayers will see their AMT exemptions go up $300 in 2016 to $53,900, while joint filers will see a $500 boost to $83,800. The lifetime exemption amount for the gift and estate tax is tied to inflation, and it is slated to increase next year as well. The exemption amount will rise to $5.45 million—up $20,000 from 2015. The limit applies to estates of those who pass away in 2016.
- http://1.usa.gov/1M834i1 – IRS
- http://ti.me/1YEkZpj – Time
- http://read.bi/1RKKbIU – Business Insider
- http://usat.ly/1HTcOl1 – USA Today
- http://onforb.es/1UiAAIE – Forbes
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US citizens are subject to US income tax as a result of their citizenship and not their residency. This means that if you are a US citizen living outside of the United States, you will still need to file a US tax return (subject to certain thresholds) and possibly pay US income tax on your worldwide income.
There may also be an obligation to file US foreign bank account forms if the combined maximum balance for all of your non-US bank accounts amount to more than $10,000.
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