Some Important Tax Changes for 2016

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Individuals

  1. Health Insurance Coverage Penalties

Penalties are assessed for each month that any individual does not have the minimum essential health insurance coverage (Obamacare). In 2016 the penalty increases to $695 per adult, or 2.5% of income with a family maximum of $2,085.

  1. Canceled Debt on Qualified Principal Residence

Debt cancelled from short sale, foreclosure, or mortgage modification of Qualified Principal Residences can be excluded from income under the Mortgage Forgiveness Debt Relief Act. This was extended to the end of 2016 and can also apply to debt that is discharged in 2017 if a written agreement is entered into in 2016.

  1. Increase in Maximum Earned Income Credit

The Earned Income Credit has increased to $6,269 from a total of $6,242 in 2015 for taxpayers filing jointly who have 3 or more qualifying children.   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 can claim up to $506 for 2016 which is up $3 from 2015.

 4. Increase in Standard Deduction for Head of Household

The standard deduction for head of household increased from $9,250 in 2015 to $9,300 in 2016 by $50.

  1. Increase in Personal Exemption

The personal exemption for tax year 2016 increased by $50 to $4,050 from $4,000 in 2015. The exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly).

6. Increase in Alternative Minimum Tax Exemption

Alternative Minimum Tax Exemption was $53,600 in 2015 and increased to $53,900 in 2016 by $300 for individual filers. For married couples filing jointly, the exemption increases by $400 from $83,400 in 2015 to $83,800 in 2016.

7. Increase in Qualified Parking Exclusion

In 2016, employees may exclude from income $255 per month up from $250 in 2015 reflecting a $5 increase.

Small Businesses

  • Employee Healthcare Coverage

Small businesses that cover 50% or more of premium costs and employ fewer than 25 workers may also qualify for Health Care Tax Credit while businesses that fail to provide employees with healthcare will be subject to penalties.

  • Tax Savings for Employing Certain Groups

Employers can save by hiring members of particular groups, such as veterans and individuals who are receiving food stamps under the Consolidated Appropriations Act of 2015, also referred to as “the budget,” passed in December 2015.

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