Now is the time to Plan! Now is the Time to Act!
The 2016 tax season is here. Filing your taxes for 2016 year will become infinity easier if you understand the changes that the IRS has put in place for the calendar year. Below, is all the information you will need to know about the changes that have been made, the resulting benefits due and any increase in tax benefits. For example, are you planning to get married in 2016? Did you know that even if you get married on December 31, 2016, you can still file “Married Filed Joint” just as if you were married the whole year? Why is this important to know? Because the tax table is structured differently for a married couple. It is not as if you can just double the rates for the Single category. You may have to make adjustments in your withholding or find yourself with a balance due. Are you expecting a child in 2016? What is that additional dependent worth? What withholding adjustments can you make now because of the additional deduction? Did you know that can make any adjustment to you withholding by simply asking your employer for a new W-4. You can use the new W-4 to add or remove the number of exemptions you claim. Or you can make an adjustment by leaving the number of exemptions as is and just have a little more money added to you withholding.
Increase in Tax Brackets
Due to inflation, the tax brackets for income taxes have increased across the board
If you’re single you will owe:
• $0-$9,275 you will owe 10 of your taxable income.
• $9,275-$37,650 you will owe $927.50 + 15 of anything over $9,275.
• $37,650-$91,150 you will owe $5,183.75 + 25 of anything over $37,650.
• $91,150-$190,150 you will owe $18,558.75 + 28 of anything over $91,150
• $190,150-$413,350 you will owe $46,278.75 + 33 of anything over $190,150.
• $413,350-$415,050 you will owe 119,934.75 + 35% of anything over $413,350.
• $415,050 and higher you will owe $120,529.75 + 39.6 of anything over $415,050.
If you’re married and filing jointly, you will owe:
• $0-$18,550 you will owe 10 of your taxable income.
• $18,550-75,300 you will owe $1,885 + 15% of anything over $18,550
• $75,300-$151,900 you will owe $10,367.50 + 25 of anything over $75,300.
• $151,900-$231,450 you will owe $29,517.50 + 28 of anything over $151,900.
• $231,450-$413,350 you will owe $51,791.50 + 33 of anything over $231,450.
• $413,350-$466,950 you will owe $111,818.50 + 35 of anything over $413,350.
• $466,950 and higher you will owe $130,578.50 + 39.6 of anything over $466,950.
Increase in Standard Deduction
The standard deduction for heads of household rises from $9,250 for the 2015 tax year, to $9,300 for the 2016 tax year. The other standard deduction amounts for 2016 remain as they were for 2015: $6,300 for
singles and married persons filing separate returns and $12,600 for married couples filing jointly.
Earned Income Credit
The maximum Earned Income Credit amount for 2016 is $6269 for taxpayer filing jointly who have 3 or more qualifying children, up from a total of 6,242 for tax year 2015. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
Affordable Care Act
Millions will still have access to affordable health care in the United States, however, the penalties have increased. There is a penalty of 2% of yearly household income or $325 per person for individuals, with a maximum penalty per family for those using this method of $975.
Increase in Identity Theft
Due to last year’s tax fraud, the IRS has implemented a new policy. Taxpayers may receive a letter when the service stops suspicious tax returns that attempt to steal your identity, but use their own social security number or name. Taxpayers now also have the ability to receive copies of the fraudulent tax returns, so they can take steps to secure their identity.
As per the Supreme Court ruling in 2015, all married couples will be recognized the same way for state income tax purposes, regardless of gender. This will impact the ability to file joint income tax returns, the ability to transfer property to each other tax-free, the ability to leave an estate to the spouse without gift tax implications, and spousal treatment of inherited IRAs.
Salary Threshold for Overtime Pay
Rules proposed by the Obama administration are changing the face of overtime pay. If accepted, the Department of Labor would require most salaried workers earning less than $50,440 annually to be paid 1.5 times their normal pay for time worked beyond 40 hours. If passed, it will take effect on January 1, 2016.
New Filing Deadlines
In observance of Emancipation Day on Friday, April 15, taxpayers will have until the 18th to file their 2015 individual tax returns and make their estimated tax payments. Taxpayers in Main and Massachusetts will have until the 19th of April in observance of Patriots day on April 18th.