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Tax Thresholds and Obamacare Penalties Rise

January 12, 2016

The year ahead will bring relief for many tax-payers, with brackets getting lifted for income, capital gains, estate and gift taxes, although married couples may suffer disproportionately and the Affordable Care Act will penalize non-participants more this year, the Wall Street Journal writes.

In December Congress made permanent several provisions whose future was uncertain, including the American Opportunity tax credit, a benefit for higher education, a provision for IRA charitable transfers for savers 70 1/2 and over, some mass-transit-related benefits, a child credit, and the choice to deduct either the state sales tax or the income tax on the federal tax return, the Journal writes.

But the penalty for those outside the Affordable Care Act-approved health insurers will rise in 2016, with the flat assessment more than doubling to $695 per individual and a maximum of $2,085 per household, and the percentage-based assessment rising to 2.5% from 2% in 2015, although some groups will be exempt, according to the publication.

Inflation has pushed up brackets for tax rates, with 39.6% now applied to married couples with $466,950 or more in annual income or $415,050 for singles, which penalizes some married couples where incomes are similar, the Journal writes.

Inflation-based bracket rises also extend to long-term capital gains, says the Journal, while the tax exemption for estate and gift taxes will rise to $5.45 million per person or $11 million per couple, so only 4,400 people will be on the hook for this tax, according to Tax Policy Center data cited by the Journal.


But single investors with more than $200,000 in gross investment income, or married investors with more $250,000, will have to pay a 3.8% surtax on net investment income, the publication writes.

Advisors should keep in mind the tax deadlines for 2016 as they relate to their retired clients, InvestmentNews writes.

January 1 was the date by which people needed to turn age 62 in order to be able to claim only spousal benefits, and coming up on Jan. 15 is the quarterly federal tax deadline for retirees filing four times a year, which can be skipped if the whole balance is paid by Feb. 1, according to the publication.

The other quarterly-tax deadlines are April 18 (which is this year’s federal tax filing deadline because of Emancipation Day celebrations on April 15), June 16 and Sept. 15, the publication writes.

April 1 is the deadline for retirees who have turned 70 1/2 in 2015 to take their first required minimum distribution from one of their retirement accounts, although if they wait that long they’ll have to take a second one by the end of the year and then every year after, InvestmentNews writes.

A month later, May 1, is the deadline to file and suspend Social Security benefits for retirees 66 and over, followed by several months free of tax-related paperwork — until Oct. 15, when enrollment begins for Medicare Part D prescription plans and Medicare Advantage plans, the publication writes.

October 17 is the deadline to file taxes for those who had asked for an extension, giving late payers two extra days, but it is also the last day to reverse a 2015 Roth conversion, InvestmentNews writes.

By Dec. 31 advisors must ensure their clients have performed all the necessary tax-related tasks such as taking required minimum distributions, making donations eligible for tax deductions and selling underperforming securities for tax harvesting, the publication writes.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.
  • To read the Wall Street Journal article cited in this story, click here.