New in 2016 U.S. tax year

NEWS UPDATE

Summary of the most important changes for 2016 U.S. individual tax returns


For tax year 2016, the 39.6 percent tax rate affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly).


The standard deduction for heads of household rises to $9,300 for tax year 2016. The other standard deduction amounts for 2016 remain as they were for 2015:   $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly.


The limitation for itemized deductions to be claimed on tax year 2016 returns of individuals begins with incomes of $259,400 or more ($311,300 for married couples filing jointly).


The personal exemption for tax year 2016 rises $50 to $4,050, up from the 2015 exemption of $4,000. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)


The Alternative Minimum Tax exemption amount for tax year 2016 is $53,900 and begins to phase out at $119,700 ($83,800, for married couples filing jointly for whom the exemption begins to phase out at $159,700). For tax year 2016, the 28 percent tax rate applies to taxpayers with taxable incomes above $186,300 ($93,150 for married individuals filing separately).


The tax year 2016 maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.


For tax year 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking.


For tax year 2016 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250, but not more than $3,355. For self-only coverage the maximum out of pocket expense amount remains at $4,450. For tax year 2016 participants with family coverage, the floor for the annual deductible remains as it was in 2015 -- $4,450, however the deductible cannot be more than $6,700. For family coverage, the out of pocket expense limit remains at $8,150 for tax year 2016 as it was for tax year 2015.


For tax year 2016, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $111,000.


For tax year 2016, the foreign earned income exclusion is $101,300, up from $100,800 for tax year 2015.


Estates of decedents who die during 2016 have a basic exclusion amount of $5,450,000, up from a total of $5,430,000 for estates of decedents who died in 2015.


Taxpayers will have until Tuesday, April 18, 2017 to file their 2016 returns and pay any taxes due. Taxpayers requesting an extension will have until Monday, Oct. 16, 2017 to file.


A law change that went into effect this year requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until at least February 15. The IRS must hold the entire refund — even the portion not associated with the EITC and ACTC.


Any ITIN not used on a tax return at least once in the past three years has expired. Also now expired is any ITIN with middle digits of either 78 or 79 (9NN-78-NNNN or 9NN-79-NNNN).It can take up to 11 weeks to process a complete and accurate ITIN renewal application, thus the IRS urges anyone with an expired ITIN to submit their ITIN renewal application as soon as possible.


A taxpayer who inadvertently fails to properly complete a tax-free rollover of a distribution from an IRA or workplace retirement plan to another eligible retirement program can often qualify to use a new self-certification procedure. Under the procedure, eligible taxpayers can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. Further details, including a sample self-certification letter can be found in Revenue Procedure 2016-47, posted on IRS.gov.


The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is now the same as for a federal income tax return. This means that the 2016 FBAR, Form 114, must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 18, 2017. FinCEN will grant filers missing the April 18 deadline an automatic extension until Oct. 16, 2017 to file the FBAR. Specific extension requests are not required. In the past, the FBAR deadline was June 30 and no extensions were available.


2016 exchange rate published on the IRS website is USD to EUR 0.940.


Published on the IRS website