Changes for 2015
Each year, the U.S. tax code undergoes some changes that can change the amount we owe the IRS come Tax Day. Staying on top of important changes can help you save more and avoid headaches and hassles.
1. 401(k) contribution limits
For 2014, the contribution limit for 401(k) retirement accounts was $17,500, plus another $5,500 "catch-up" contribution for those 50 or older. Those limits, which remained fixed from 2013 to 2014, rise to $18,000, along with a $6,000 catch up for those 50 and above, for 2015 -- and 2016. Employer-based retirement plans such as 401(k)s can be powerful savings builders, especially if you grab all the employer matching funds available. These numbers also apply to 403(b) plans, most 457 plans, and the federal government's Thrift Savings Plan. Note that to qualify for the catch-up contributions, you need to reach the minimum eligibility age of 50 at any time during 2015, so a Dec. 31 birthday does not decrease your eligibility.
2. Traditional IRA deduction eligibility
IRA contribution limits for 2015 and 2016 remain the same as in 2014, capped for most of us at $5,500, with a $1,000 catch-up contribution allowed for those 50 and older. But some other IRA rules change. Your ability to deduct traditional IRA contributions from your taxable income is limited by your earnings, and your allowable contributions are phased out as your income crosses a certain threshold. The limits have been made a bit more generous for 2015. From the IRS:
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple's income is between $183,000 and $193,000, up from $181,000 and $191,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limits above generally rise by $1,000 for 2016.
3. Roth IRA eligibility
The Roth IRA's eligibility is also expanding a bit, with the AGI phaseout range rising from between $181,000 and $191,000 in 2014 to between $183,000 and $193,000 in 2015 for married-filing-jointly couples. For single folks and heads of households, the range rises from between $114,000 and $129,000 to between $116,000 and $131,000. (For 2016, the income limits generally increase by $1,000.) Those earning too much to contribute to a Roth IRA in the usual way might consider contributing to a nondeductible IRA and converting it to a Roth IRA.
4. IRA rollovers limited
Beginning in 2015, you can only execute one IRA rollover per year. A rollover involves taking money out of one IRA, holding it for fewer than 60 days, and then plunking it into another IRA. (This does not apply to trustee-to-trustee transfers, such as when you move an IRA account and its holdings from one brokerage or trustee to another.)
5. My Retirement Account
Another kind of retirement account is brand new, created by the U.S. Department of the Treasury and designed to be offered through employers. The myRA, or my Retirement Account, is small in scale but still useful, especially as a way to start socking money away for retirement. It charges no fees and offers modest, guaranteed growth, so you won't lose any money. You can start a myRA with must $25 and can add as little as $5 at a time, though more is better. (Contribution limits here are the same as for IRAs – currently $5,500, plus $1,000 for those 50 and up.) Once your account reaches $15,000 in value, it has to be rolled over into a private-sector Roth IRA.
6. SEP IRA contribution limits
Self-employed folks accumulating retirement money in a SEP IRA will see their contribution limits rise from $52,000 in 2014 to $53,000 in 2015 and 2016, with related compensation limits rising from $260,000 to $265,000. These numbers apply to solo 401(k)s, too.
7. SIMPLE IRA contribution limits
For 2015, you will be able to contribute as much as $12,500, up from $12,000 in 2014, plus a $3,000 catch-up contribution if you're 50 or older. It's the same for 2016.
8. Health Savings Account eligibility
You might know that since 2013, you have been able to carry forward up to $500 in unused money each year from a flexible spending account. (An FSA lets you set aside pre-tax dollars to be used for qualifying healthcare expenses, but most of the money must be used within the year or is forfeited.) Beginning in 2015, though, if you carry forward any money, you will no longer be eligible for a Health Savings Account. This new rule confused many people, so the IRS clarified it in a memo. It's still complicated, though, so read more about it or perhaps consult a tax professional.
9. Penalty for not carrying health insurance
Let's not forget Obamacare. Its upside is making healthcare coverage affordable for millions of Americans, but it also penalizes those who opt out. For 2014, those who did not have "minimum essential coverage" by March 31, 2014, got socked with a penalty of 1% of income above the tax filing threshold, or $95 per adult and $47.50 per child (up to a family maximum of $285) – whichever is greater. For 2015, these jump to 2% of your income, or $325 per person and $162.50 per child, up to a family maximum of $975. These rise further in 2016 to 2.5% of income, with a maximum of $695 per adult, $347.50 per child, and $2,085 for families.
Other new tax laws for 2015 and beyond are worth learning about, too. But you now know about most of the big ones that are most likely to affect you.
10. The $15,834 Social Security bonus
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.
Changes for 2016
Tax laws in 2016 will bring some changes you need to know about. By learning about them you'll be better able to take steps that will leave you prepared. Many things aren't changing - Even though the 10 things listed below are changing, many other typical annual changes aren't happening. Contribution limits to 401(k) plans, IRAs, and flexible spending arrangements are all staying the same in 2016 as they were in 2015, reflecting the minimal amount of inflation in the economy.
Most people put off tax planning to the last minute, but by knowing about these coming changes before they take effect, you can do more comprehensive tax planning that will serve you better in 2016 and beyond.
1. Tax Day is April 18
The Washington, D.C., holiday of Emancipation Day is on Friday, April 15, 2016. Under federal law, the tax deadline gets extended when it falls on a holiday or weekend, and so the tax deadline for most taxpayers will be the following Monday, April 18. For those states in New England that celebrate Patriot's Day, an even later April 19 deadline will apply.
2. Tax penalties related to Obamacare
The Affordable Care Act imposed penalties for those not having qualifying health care coverage. Those penalties started at $95 per adult, or 1% of income above the filing threshold in 2014, but they rose to $285 per adult, or 2% of income above the filing limit in 2015. For 2016, penalties will rise again, hitting $695 per adult, or 2.5% of income. A family maximum will apply to the per-person amount, but the $2,085 amount will be substantially higher than the $975 in 2015, and the $285 in 2014.
3. Tax brackets rising
Most of the tax brackets that govern different classes of taxpayers are adjusted for inflation. For 2016, these bracket amounts are rising by roughly 0.4%.
4. Standard deductions are going up for head-of-household filers
The low inflation rate kept standard deductions for most taxpayers steady in 2016 from 2015 levels, including the single, married filing jointly, and married filing separately statuses. For those who qualify as heads of household, the standard deduction will rise $50 to $9,300 in 2016.
5. Personal exemptions rising
The personal exemption that taxpayers are entitled to take on their tax returns will go up by $50 in 2016. That will give everyone an exemption amount of $4,050.
6. Contribution limits on health savings accounts
Health savings accounts let people with high-deductible health plans set money aside on a pretax basis to cover the costs of their health care. For 2016, the contribution limit for individual policies will remain at $3,350, but the maximum contribution for family policies will rise by $100 to $6,750. A catch-up contribution of $1,000 for those 55 or older will continue to apply.
7. The Earned Income Credit
The maximum allowable Earned Income Credit will go up modestly in 2016. For those with three or more qualifying children, the maximum credit will rise to $6,269, up $27. 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 get just a $3 bump and can claim up to $506 for 2016.
8. The exemption from AMT
The alternative minimum tax has struck a growing number of taxpayers, making the exemption amount more important than ever. Single taxpayers will see their AMT exemptions go up $300 in 2016 to $53,900, while joint filers will see a $500 boost to $83,800.
9. The estate tax exemption
The lifetime exemption amount for the gift and estate tax is tied to inflation, and it is slated to rise next year as well. The exemption amount will rise to $5.45 million, up $20,000 from 2015. The limit applies to estates of those who pass away in 2016.
10. Other tax provisions
Nearly every year, lawmakers wait until the last minute to renew popular tax breaks, such as charitable distribution from IRAs, state sales tax deductions, teachers' write-offs for classroom supplies, and deductions for private mortgage insurance. As of early December, these provisions hadn't yet been renewed for 2015, but typically, lawmakers renew them retroactive to the beginning of the year. The same is likely in 2016 unless an extension provides for two years of relief rather than just one.