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Congress adjusts the tax laws each year by bills presented throughout the year. Often they wait until the final December budget bill to make significant changes to the tax code and then make them retroactive to the first of the year, giving you the benefit or not, when taxes are filed in April the following year.
These adjustments may also address increases in the cost of living, tax implications for new laws that have been passed, close loopholes they feel are being abused, and new taxes based on income they need to raise. The changes and updates made in 2015 were not significant in terms of new taxes, rather they are adjustments based on the cost of living and tax implications due to new laws.
Here are the tax changes that impact the majority of filers.
Adjustments for Inflation
The EIC or Earned Income Credit maximum increased to $6,242. The EIC credit is in place to help low and moderate income families with tax relief. The credit phases out based on income and the size of your household. One of the benefits of the EIC credit is that you can receive money back even if you do not have children, and it is also possible to collect a refund even if no taxes are owed.
Personal Exemption was raised to $4,000. Each return gets a $4,000 credit to offset income for each dependent on the return.
Standard Deductions rose across the board. Single filers saw an increase to $6,300 and married couples filing jointly saw an increase to $12,600. Head of Household increased to $9,250. This is only a small cost of living adjustment. Single filers get an additional $100 and those married, filing jointly see a $200 increase. Those that itemize deductions will use that instead of the standard deduction.
Increase Contributions to 401(k)’s now has a maximum of $18,000. The maximum contribution for those over the age of 50 was increased to $6,000 in addition to the $18,000 maximum for standard contributions. This increases the total allowed 401(k) contributions for those over 50 to $24,000 per person per year.
Child Unearned Income Tax is offered to children who have investment income. The limits for income taxes at the lower child rate was raised to $2,100. Any income on accounts in the child’s name over this threshold will be taxed at the parent’s rate.
Healthcare Tax Law Changes
Health Insurance Tax or “penalty” is charged to anyone who does not have health insurance coverage throughout the year, and does not have a qualifying exception waiving the tax penalty for lack of coverage. Employer health insurance, private insurance, marketplace insurance, or Medicaid all meet this requirement thus avoiding the tax. Anyone (adults and children) who goes 60 days without health insurance in 2015, without a qualified exemption, will be charged the tax.
This can be confusing because you sign up from October to January and estimate your income. Based on that information you may qualify for a government supplement to assist with the cost of coverage. If you guess high, you may increase your refund. If you guess low, you may owe more in taxes. If you forgo coverage completely you are basically charged a fine that is collected as a tax.
For 2015, the uninsured tax increased to $325 per adult or 2% of income, and $162.50 per child, whichever is more. The maximum tax for a family is $975. The tax is charged for every member of the household who does not carry appropriate health insurance. Those with health insurance receive a form from the insurance provider to be included on your taxes. Those who meeting a qualifying exemption must apply for the exemption, which is separate from the tax return. Once the exemption is approved, you are given an exemption number that must be included when you file. You may file without the exemption number, however if the exemption is not approved you will be required to file an amendment and pay the tax.
Flexible Savings Accounts (FSA)s are commonly offered through large employers which allow you to set aside pretax dollars to cover healthcare and childcare costs. These accounts have typically been “use it or lose it” accounts with any balance at the end of the year being forfeited. Changes in 2015 have increased contribution limits to $2,550 per year and now allow rollovers up to $500, if the employer chooses to allow them.
Health Saving’s Accounts: Rolling over funds in an FSA account will make you ineligible for a healthcare savings account (HSA) in the year of the rollover. HSA’s are personal accounts that receive tax preferential treatment and can be used to pay for healthcare expenses not covered by insurance. HSA’s offer larger contribution limits and do not expire at the end of the year. While these accounts do not offer an initial tax deduction, contributions grow tax-free. These funds may be used for deductibles, eye care, dental work, and other costs not covered by insurance. You are able to build a nest egg specifically earmarked for healthcare expenses down the road. In 2015 contribution limits on these accounts increased to $3,350 for single filers and $6,650 for families.
Retirement Account Changes
IRA Transfers occur when a consumer rolls over a retirement account from one qualified plan to another. For example, if you leave an employer you may rollover your 401(k) into a personal IRA account without any tax consequences or penalties. You may also change custodians or banks at any time by moving your IRA from one institution to another. Direct transfers occur when you never touch the money and the funds are directly moved from one third party provider to another. Direct transfers are still unlimited. The new restrictions come with IRA transfers where the consumer receives the funds and has 60 days to deposit the money into another IRA account for the tax free transfer. This loophole essentially offered a tax-free loan. Such transfers are now limited to one every 12 months.
MyRA Accounts are a new retirement vehicle geared towards low income families and millennial’s who are just beginning in the workforce. They have similar tax benefits of a traditional IRA but feature minimum contributions and no fees. They do not provide an initial tax deduction; however, the funds grow tax-free. This enables low income earners to begin an account with no minimum balance requirements. Once the account has grown to a more substantial balance, you may roll over the funds into a Roth IRA with more investment options.
The tax filing date for 2016 is April 18 and those with Maine or Massachusetts get an extra day, until April 19th.
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If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a free financial analysis.
Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high-interest credit card debt any longer.
Call (855) 250-8329 or get in touch with us by sending a message through our website https://timberlinefinancial.com.