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What's New for Individuals

Standard Deduction

Nearly two out of three taxpayers choose to take the standard deduction rather than itemizing deductions such as mortgage interest and charitable contributions. The standard deductions for  2016 are:

Filing Status 2016

Married Filing Separately  $6,300

Single $6,300

Head of Household $9,300

Married Filing Jointly  $12,600

Surviving Spouse  $12,600

Note that the standard deduction amount for married filing jointly is twice the amount of those taxpayers filing as single or married filing separately. This marriage penalty relief in the standard deduction amounts is now permanent for taxable years beginning after December 31, 2012.

The additional standard deduction for the elderly and blind is increased as follows for 2016:

(1) Unmarried taxpayer: an additional $1,550 – same as in 2015 ($3,200 for a taxpayer who is both elderly and blind); and

(2) Married taxpayer: an additional $1,250 – same as in 2015 ($2,500 for a taxpayer who is both elderly and blind) (§63(f)).

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This section summarizes important tax changes that took effect in 2016  Most of these changes are discussed in more detail throughout this publication.

Future developments. For the latest information about the tax law topics covered in this publication, such as legislation enacted after it was published, go to www.irs.gov/pub17.

Information reporting about health coverage. If you or someone in your family had health coverage in 2015, the provider of that coverage is required to send a Form 1095-A, 1095-B, or 1095-C (with Part III completed) by January 31, 2016, that lists individuals in your family who were enrolled in the coverage and shows their months of coverage. Use this information to help complete your return. You do not need to attach these forms to your return. You may have had health care coverage for some or all of 2015 even if you didn’t receive a form with this information. See chapter 37 and the Form 1095-A, 1095-B, or 1095-C Instructions for Recipient for more information.

Information reporting about employer offer of coverage. If you or someone in your family was an employee in 2015, the employer may have sent you a Form 1095-C. Part II of Form 1095-C will show whether your employer offered you health insurance coverage and information about the offer. If you purchased health insurance coverage for 2015 through the Health Insurance Marketplace and wish to claim the premium tax credit, this information will help you see if you are eligible for the credit. You do not need to attach Form 1095-C to your return. If you do not wish to claim the premium tax credit for 2015, you do not need the information in Part II. Form 1095-C may include information in Part III if you, or others in your family, enrolled in an employer’s health plan. See chapter 37 for information about the premium tax credit.

Health care individual responsibility payment increased. If you or someone in your household didn’t have qualifying health care coverage or qualify for a coverage exemption for one or more months of 2016, the amount of your shared responsibility payment may be much higher this year than it was last year. Like last year, you must do one of the following.

  • Indicate on your tax return that you, your spouse (if filing jointly), and anyone you can or do claim as a dependent had qualifying health care coverage throughout 2016.

  • Claim an exemption from the health care coverage requirement for some or all of 2016 and attach Form 8965 to your return.

  • Make a shared responsibility payment if, for any month in 2016, you, your spouse (if filing jointly), or anyone you can or do claim as a dependent didn’t have coverage and does not qualify for a coverage exemption.

See the Instructions for Form 8965 for details.

Requirement to reconcile advance payments of the premium tax credit. If you or a family member enrolled in health insurance through the Marketplace and advance payments of the premium tax credit were made to your insurance company to reduce your monthly premium payment, attach Form 8962 to your return to reconcile (compare) the advance payments with your premium tax credit for the year, which you figure on Form 8962. The Marketplace is required to send Form 1095-A by January 31, 2017, listing the advance payments and other information you need to figure your premium tax credit. Use Form 1095-A to complete Form 8962. Attach Form 8962 to your return. Do not attach Form 1095-A to your return. See chapter 37 .

Due date of return.  File your tax return by April 17, 2017. 

Public safety officers. Certain amounts received because of the death of a public safety officer are nontaxable. See Pub. 525 for details.

Direct deposits of refund to a myRA® account. You now can have your refund directly deposited to a new retirement savings program called a myRA®. This is a starter retirement account offered by the Department of the Treasury. See chapter 1 .

Health coverage tax credit. The health coverage tax credit, which expired at the end of 2013, has been reinstated retroactive to January 1, 2014. See chapter 38 .

Additional child tax credit. You can't claim the additional child tax credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. See chapter 34 .

My Social Security Account. Social security beneficiaries can now get a variety of information from the SSA website with a my Social Security account. See chapter 11 .

Expired tax benefits. At the time this publication was prepared for printing, certain tax benefits had expired. These included the following.

  • Tuition and fees deduction.

  • Deduction for educator expenses in figuring adjusted gross income.

  • Deduction for state and local general sales taxes.

  • The exclusion from income of qualified charitable distributions from IRAs.

  • Credit for certain nonbusiness energy property.

  • Deduction for mortgage insurance premiums.

You can find out whether legislation extended these and other tax benefits to allow you to claim them on your 2015 return at www.irs.gov/pub17.

Application of one-rollover-per-year limit for IRAs. Starting in 2015, you can make only one rollover from one IRA to another (or the same) IRA in any 1-year period regardless of the number of IRAs you own. However, you can continue to make unlimited trustee-to-trustee transfers between IRAs because this type of transfer is not considered a rollover. Also, there is no limit to the number of rollovers from a traditional IRA to a Roth IRA (also known as conversions). See chapter 17 .

Business Changes

The following are some of the tax changes for 2016. For information on other changes, go to IRS.gov.

Standard mileage rate.  For 2016, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is .54 cents per mile.

Self-employment tax. The maximum net self-employment earnings subject to the social security part of the self-employment tax is $118,500 for 2015.

Reminders

Accounting methods. Certain small business taxpayers may be eligible to adopt or change to the cash method of accounting and may not be required to account for inventories. For more information, see Inventories in chapter 2.

Reportable transactions.  You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. You may have to pay a penalty if you are required to file Form 8886 but do not do so. You may also have to pay interest and penalties on any reportable transaction understatements. Reportable transactions include:

  1. Transactions the same as or substantially similar to tax avoidance transactions identified by the IRS,

  2. Transactions offered to you under conditions of confidentiality for which you paid an advisor a minimum fee,

  3. Transactions for which you have, or a related party has, contractual protection against disallowance of the tax benefits,

  4. Transactions that result in losses of at least $2 million in any single tax year ($50,000 if from certain foreign currency transactions) or $4 million in any combination of tax years, and

  5. Transactions the same or substantially similar to one of the types of transactions the IRS has identified as a transaction of interest.

For more information, see the Instructions for Form 8886.

Simplified method for business use of home deduction. . The IRS provides a simplified method to determine your expenses for business use of your home. For more information, see Business Use of Your Home in chapter 8.

 

IRA and Other Retirement Plans

What's New for 2015

Application of one-rollover-per-year limitation. Starting in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 1-year period regardless of the number of IRAs you own. However, you can continue to make unlimited trustee-to-trustee transfers between IRAs because this type of transfer is not considered a rollover. Furthermore, there is no limit on the number of rollovers from a traditional IRA to a Roth IRA (also known as conversions). For more information, see Application of one-rollover limitation , later.

Amount of Roth IRA Contributions That You Can Make for 2016

This table shows whether your contribution to a Roth IRA is affected by the amount of your modified AGI as computed for Roth IRA purpose.

If your filing status is... And your modified AGI is... Then you can contribute...
married filing jointly or qualifying widow(er)

< $184,000

up to the limit

> $184,000 but < $194,000

a reduced amount

> $194,000

zero

married filing separately and you lived with your spouse at any time during the year

< $10,000

a reduced amount

> $10,000

zero

single, head of household, or married filing separately and you did not live with your spouse at any time during the year

< $117,000

up to the limit

> $117,000 but < $132,000

a reduced amount

> $132,000

zero

Amount of your reduced Roth IRA contribution

If the amount you can contribute must be reduced, figure your reduced contribution limit as follows.

  1. Start with your modified AGI.
  2. Subtract from the amount in (1):
    1. $184,000 if filing a joint return or qualifying widow(er),
    2. $-0- if married filing a separate return, and you lived with your spouse at any time during the year, or
    3. $117,000 for all other individuals.
  3. Divide the result in (2) by $15,000 ($10,000 if filing a joint return, qualifying widow(er), or married filing a separate return and you lived with your spouse at any time during the year).
  4. Multiply the maximum contribution limit (before reduction by this adjustment and before reduction for any contributions to traditional IRAs) by the result in (3).
  5. Subtract the result in (4) from the maximum contribution limit before this reduction. The result is your reduced contribution limit.

Retirement Topics - IRA Contribution Limits

For 2015, 2016, and 2017, your total contributions to all of your traditional and Roth IRAs cannot be more than:

  • $5,500 ($6,500 if you’re age 50 or older), or
  • your taxable compensation for the year, if your compensation was less than this dollar limit.

The IRA contribution limit does not apply to:

Claiming a tax deduction for your IRA contribution

Your traditional IRA contributions may be tax-deductible. The deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels.

Roth IRA contribution limit

The same general contribution limit applies to both Roth and traditional IRAs. However, your Roth IRA contribution might be limited based on your filing status and income.

IRA contributions after age 70½

You can’t make regular contributions to a traditional IRA in the year you reach 70½ and older. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

Spousal IRAs

If you file a joint return, you may be able to contribute to an IRA even if you did not have taxable compensation as long as your spouse did. The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return. See the formula in IRS Publication 590-A.

If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.

Can I contribute to an IRA if I participate in a retirement plan at work?

You can contribute to a traditional or Roth IRA whether or not you participate in another retirement plan through your employer or business. However, you might not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work. Roth IRA contributions might be limited if your income exceeds a certain level.

Examples

  1. Danny, an unmarried college student working part-time, earns $3,500 in 2016. Danny can contribute $3,500, the amount of his compensation, to his IRA for 2016. Danny’s grandmother can make the contribution on his behalf.
  2. John, 42, has both a traditional IRA and a Roth IRA and can only contribute a total of $5,500 to either one or both in 2016.
  3. Sarah, age 52, is married with no taxable compensation for 2016. She and her husband reported taxable compensation of $60,000 on their 2016 joint return. Sarah may contribute $6,500 to her IRA for 2016 ($5,500 plus an additional $1,000 contribution for age 50 and over).

Tax on excess IRA contributions

An excess IRA contribution occurs if you:

  • Contribute more than the contribution limit.
  • Make a regular IRA contribution to a traditional IRA at age 70½ or older.
  • Make an improper rollover contribution to an IRA.

Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.

To avoid the excess contributions tax:

  • withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
  • withdraw any income earned on the excess contribution.

If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $183,000 but less than $193,000. If your modified AGI is $193,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct , later.

Qualified charitable distributions (QCDs). The provision for tax-free distributions from IRAs for charitable purposes does not apply for 2015 or later years.

 

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Revised: 01/11/2016