Be Aware of Changes That May Affect Your 2016 Tax Returns01/26/2017
Although it is unclear what the future will bring, some changes have already been put into law that will affect tax returns filed for fiscal 2016.
“One major change for 2016 is a higher penalty for not having health insurance, which is a fee called the individual shared responsibility payment,” said Nancy Granovsky, Texas A&M AgriLife Extension Service family economics specialist, College Station.
She said under current regulations, certain taxpayers without health insurance will have to pay 2.5 percent of their income above the filing threshold — or $695 per adult and $347.50 per child for a family maximum of $2,085.
“This is unless they qualify for an exemption,” she added. For more information about claiming exemptions, go here.
Granovsky said the year will also be the last in which parents of college students may apply the tuition and fees adjustment.
“Unless a further change is made, this deduction will expire after this tax season,” she said.
Granovsky also noted there will be a delay in the processing of returns filed early by taxpayers with children who qualify for a tax refund.
“The IRS is delaying any refunds related to the earned income tax credit, EITC, and additional child tax credit, ACTC, until the middle or end of February,” she said.
In December 2015, the Protecting Americans from Tax Hikes Act became law, explained Joyce Cavanagh, also an AgriLife Extension specialist in family economics in College Station.
“This law included a provision for delaying EITC- and ACTC-related refunds,” she said. “Under this law, the IRS must hold the entire refund — even that portion not directly associated with the earned income or additional child tax credit — until at least Feb. 15.”
She said the extra time is to allow the IRS to ensure the refundable tax credit claims are proper and correct by verifying income reported by employers. It may also protect against identity thieves who may be filing fraudulent returns using other people’s information and claiming EITC.
Cavanagh said while the earned income tax credit can be a great benefit for workers who don’t make much money or those who worked part of the year and then lost a job, filing for the credit can be complicated and may require professional help.
“This tax break returns to qualified individuals a portion of the taxes they paid, but the cost of hiring a professional may offset the potential return,” she said. “However, there are free tax preparation assistance programs available in many communities.”
The Volunteer Income Tax Assistance program, or VITA, and the AARP Tax-Aide program are both IRS-sponsored programs that provide free tax preparation assistance to low- and moderate-income taxpayers. In addition, the IRS Free File program provides eligible taxpayers free access to tax preparation software. To find a VITA or Tax-Aide site go here.
Still, investigating EITC or ACTC credits may be worth the extra time and or expense, she said.
“EITC and ACTC are refundable credits that may produce a tax refund for eligible filers with no tax liability,” Cavanagh said. “Most tax credits are nonrefundable so they essentially just zero out your tax bill. But a refundable credit will allow you to get money back in the form of a refund.”
Granovsky noted the IRS is encouraging taxpayers to e-file if they haven’t already planned to do so and that one of the benefits of VITA and the AARP program is that returns are e-filed.
“According to the IRS, last year more than 85 percent of taxpayers filed electronically,” she said. “The IRS says this is the fastest, easiest and safest way to file. The tax software does the math and modern encryption measures protect the information.”
E-filing also allows for faster refunds, especially when used in conjunction with direct deposit, Granovsky said.
Both experts also noted the first of the year is an excellent time to gather 2016 receipts, find records for charitable contributions, locate a copy of last year’s return for comparison and note any personal information or dates of transactions that may need to be used in filing your return. Then collect W-2s, 1098s, 1099s, the Form 1085-A relating to health coverage and any other necessary documents as they arrive.
Granovsky and Cavanagh also noted there will be tax changes for fiscal 2017 that will apply to taxes filed in 2018. These changes will include a small increase in standard deductions, adjusting the tax brackets for inflation, increased adjustments for traditional and Roth IRA phase-outs, a higher threshold for seniors itemizing medical expenses and a small increase in the estate tax exemption.
Source: Paul Schattenberg, Texas AgriLife Extension