2016 Tax Law Highlight or Changes
Standard Deduction and Personal exemptions: The standard amount you can deduct from income if you don’t itemize your deductions is $6,300 ($12,600 for married couples filing jointly, or $9,300 if you file as head of household). If you are age 65 or older on the last day of the year and don’t itemize deductions, you are entitled to a higher standard deduction. Therefore, you can take a higher standard deduction for 2016 if you were born before January 2, 1952. If you are blind on the last day of the year and you don’t itemize deductions, you are entitled to a higher standard deduction.
The personal exemption for 2016 is $4,050, up from $4,000. Each exemption for yourself, your spouse (if you file jointly), and your dependents reduces your taxable income by $4,050. There is no marriage penalty relief because the standard deduction for married taxpayers filing jointly increases and the 15% of tax bracket expands. Exemption phaseout. You lose at least part of the benefit of your exemptions if your adjusted gross income is more than a certain amount. For 2016, this amount is $155,650 for a married individual filing a separate return; $259,400 for a single individual; $285,350 for a head of household; and $311,300 for married individuals filing jointly or a qualifying widow(er).
Alternative Minimum Tax: For tax year 2016, the Alternative Minimum Tax Exemption amounts increased to $83,800 for married filing jointly or qualifying widow(er) status, $53,900 for single and head of household status, $41,900 for a married filing separately. In addition, nonrefundable credits are allowed against AMT. AMT tax brackets: For 2016, the 26% tax rate applies to the first $186,300 ($93,150 if married filing separately) of taxable excess (the amount on line 30).
Earned income credit: If you have no children, your maximum Earned Income Credit for 2016 is $506. With two children, the maximum amount is $5,572, and with one child, it is $3,373. If you have three or more qualifying children, the maximum Credit you can receive for 2016 is $6,269 (up from $6,242 in 2014).
Social Security Wage Ceiling: The maximum amount of your earned income on which you pay Social Security tax is $118,500 for 2015 and the limit has no change for 2016. When you reach that amount with one employer, they should stop withholding Social Security tax from your pay until the following year. If you work for more than one employer, and your total earnings are more than $118,500, we will calculate a credit for any overpayment of Social Security taxes for you.
Transit and transportation fringe benefit: If your employer provides a benefit for transit passes and transportation in a commuter highway vehicle (such as a vanpool), your maximum tax-free benefit is $255 per month for qualified parking or some qualified bicycle commuting reimbursement of expenses.
Foreign earned income exclusion: If you qualify, you can exclude up to $101,300 of your foreign earned income from your taxable income for 2016. If you and your spouse both work in a foreign country and meet the qualifications, you may each be able to exclude up to $101,300.
American opportunity tax credit: The American Opportunity Tax Credit expanded on the Hope Credit. The income limits are higher, the credit is available for more qualified expenses, and you can use the credit for four years of post-secondary education instead of just two. Taxpayers will receive a tax credit based on 100 percent of the first $2,000, plus 25 percent of the next $2,000, paid during the taxable year for tuition, fees and course materials. In addition, you can even get a refund if you don’t owe any tax for up to 40% of the credit ($1,000). Generally, a taxpayer whose modified adjusted gross income is $80,000 or less ($160,000 or less for joint filers) can claim the credit for the qualified expenses of an eligible student. The credit is reduced if a taxpayer’s modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot claim the credit.