In most years, there are small tweaks to existing tax laws or wholesale changes to parts of the tax code. 2016 will be no exception as there are several adjustments and changes that may impact how much you owe in federal taxes. Let’s take a look at a few of those changes and how they may impact your finances going forward.
The Earned Income Credit Increases in 2016 for Families and Individuals
If you are in the lowest tax bracket and have kids, you may qualify for what is known as the Earned Income Credit. In 2016, those with three children may receive $6,269 while those with one child will receive up to $3,373. Those without kids may be able to qualify for a credit of up to $506, which is an increase of $3 from last year. The idea of such a credit is to help parents raise their kids on their own thereby reducing the burden on public services to do so. Individuals receiving the credit are also less likely to need public services to pay bills or find housing.
Do You Have Health Insurance?
Penalties for failing to have health coverage will increase in 2016. The penalty is the higher of the national average for bronze plans or $2,085. You can avoid paying this penalty by having coverage by the end of February. Remember, you are considered to have coverage for a month if you have coverage for any day during that month. This means that you could enroll today and avoid any possible financial implications for not having coverage this month. In most cases, any qualified plan meets the criteria of being covered whether you buy a policy through an exchange or get coverage through an employer.
The Personal Exemption is Going Up This Year
For those who cannot be claimed as a dependent on anyone else’s tax bill, you can claim an exemption of $4,050 in 2016. This is $50 more than the $4,000 exemption for 2015. The tax brackets themselves may also be increasing due to inflation. It is expected that the brackets will go up .4 percent in 2016. This means that you could make slightly more this year while remaining in the same bracket that you were last year. In effect, you may pay less in taxes and have more money to spend on yourself or your family.
Families Can Put More In Their Health Savings Account
For taxpayers who have a family, they can put an extra $100 in a health savings account, which can lower their tax burden while helping them stay healthy. However, if you are an individual, you will not see an increase in the new year, and your maximum contribution would be $3,350. The maximum for taxpayers with families is $6,750.
While paying taxes is never fun, understanding the tax code could actually put more money back in your pocket. Therefore, make sure that you take all of the deductions and credits that you qualify for to reduce your tax burden and help yourself stay financial solvent.