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5 New Tax Laws for 2016

A new year is upon us, bringing with it changes to our tax laws.In order to avoid any trouble with the IRS, plan ahead for these changes.

Penalty for the uninsured:

Under the Affordable Care Act, individuals who choose not to get health insurance through government exchanges or through their employers have to pay an additional tax. If, in 2015, you didn’t have health insurance, you’re going to pay the higher of these two amounts:

  • 2% of your yearly income above the tax filing threshold (generally about $10,150), up to a maximum cost of the national average premium to purchase a bronze plan on the federal health care exchange; or
  • $695 per person, or $347.50 per child under 18, with the maximum penalty per family being $2,085.

These costs have more than tripled since 2014 when the penalty was only 1% or $95.

Affordable Healthcare-Related Employer Paperwork:

In addition to increased tax penalties for uninsured individuals, there are some new rules related to employer specific paperwork. In 2014, the IRS released forms 1095-B and 1095-C as optional paperwork for employers. For 2016, that additional paperwork is now mandatory.

For the calendar year 2015, form 1095-B must be filed by any employer that provides minimum essential coverage to an individual, and form 1095-C must be filed by all large employers covered under the law that have an average of at least 50 employees or full-time equivalent (FTE) employees as measured by their average hours worked during the calendar year for 2015. Smaller employers with a collective total of at least 50 FTE employees must also file form 1095-C.

Filing Dates That Apply Only for 2016:

April 15, 2016, happens to be an official District of Columbia holiday called Emancipation Day, so everybody gets to file on April 18, 2016. If you live in Maine or Massachusetts, you get an additional day to accommodate Patriots’ Day, so those returns aren’t due until April 19.

Filing for Extensions:

Partnerships and S corporations must show their returns were filed by the 15th day of the 3rd month, after the end of the tax year—March 15th for those using a calendar tax year. C corporations have to file by the 15th day of the 4th month, or April 15th on a calendar-year schedule. This is a one-month deferral from the previous filing.

Higher Tax:

Our tax codes and figures are changing. In addition to deduction levels changing, income thresholds also keep changing. In 2012, when the American TaxPayer Relief Act, or ATRA, was enacted, we added a 7th federal income tax bracket of 39.6. For 2016, this means anything over these income levels will be taxed at 39.6%:

  • Married filing separate: Over $233,475
  • Unmarried individuals or singles: Over $415,050
  • Head of household: Over $441,000
  • Married filing joint: Over $466,950

Capital Gains:

The ATRA also made several important changes to  capital gains. Unmarried individuals with an income over $200,000 and married couples filing jointly with an income over $250,000 will pay an additional 3.8% care surcharge tax on investment income. This increases the effective rate on capital gains to 23.8%—capital gains of 20% plus another 3.8% if you’re hitting those levels.

At the end of the day, these changes are there to ensure you get the proper paperwork filed. If you have insurance but don’t file the right papers, you could end up getting a notice from the IRS stating that you owe money when you don’t. File the proper paperwork and the IRS won’t bother you!