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2017 Penalties for Affordable Health Care

If an individual goes without qualifying minimum essential coverage for more than a single period of up to three months in a year, he or she may owe a penalty under the Shared Responsibility payment. These have been in place since 2014 and the penalty increases annually. In 2016, it is the higher of these amounts:

  • 2.5% of annual household income above the tax filing threshold to a cap of the national average bronze plan premium  OR
  • $695/adult and $347.50/child under 18 to a maximum penalty of $2,085 per family

Certain exemptions do apply in the case of hardships, certain life events, and other situations. In addition, those who have no affordable coverage because the cost of annual premiums exceeds 8 percent of their household income are also exempt. One needs to apply for exemption.

2017 Tax Filing Date

The Internal Revenue Service announced today that the nation’s tax season will begin Monday, Jan. 23, 2017, and reminded taxpayers claiming certain tax credits to expect a longer wait for refunds.

The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date. In 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday — April 17. However, Emancipation Day — a legal holiday in the District of Columbia — will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 18, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.

2017 IRS Tax Brackets

Key Changes to the Tax Rate:

  • Standard Deduction – Increased by $50 for a head of household, but stayed the same for single filers and married people filing separate returns, as for married couples filing jointly stayed the same in 2016.
  • Gift Tax – Remains the same at $14,000
  • Alternative Minimum Tax – increased marginally to keep up with inflation.
    1. Single Filers – Exemption $53,900 and starts to phase out at $119,700
    2. Married Jointly – Exemption $83,800 and starts to phase out at $159,700

For the tax year 2016, the 28 percent AMT tax rate applies to taxpayers with taxable incomes above $186,300 ($93,150 for married individuals filing separately).

  • Personal Exemptions – Increased by $50, however, the exemption is subject to a phase-out that begins with adjusted gross income of $259,400
    1. Married Jointly – starts to phase out $311,300 and completely phases out at $381,900
  • Foreign Earned Income Exclusion – Increased by $500 to $101,300
  • Earned Income Credit – The EIC for taxpayers filing Jointly who have 3 or more qualifying children is $6,269
  • Flexible Spending Arrangement – Contribution limits will increase by $50 to $2,550

2016 IRS Tax Brackets

The brackets will rise about 0.5 percent, the IRS said, meaning a $50 increase for single filers in the lowest tax bracket up to a $2,100 increase for married filers in the highest tax bracket.

DS-IRS-brackets-table-1

The standard deduction for 2016 income will stay the same, with the exception of filers who are heads of household. They will receive a $50 boost, to $9,300. The deduction for singles and “married filing separately” will be $6,300. The deduction for married filers will be $12,600.

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The personal exemption will rise by $50 in 2016, to $4,050.  Since 2013, the personal exemption phaseout—or PEP—has reduced or eliminated personal exemptions for higher-income taxpayers.

For every $2,500 of income above the PEP limits, taxpayers lose 2 percent of the value of their personal exemptions.  This is roughly equal to an additional 1.1 percent tax for each exemption, or an added 4.3 percent for a family of four subject to the phaseout.

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Since the IRS in 2013 reinstated the limitation on itemized deductions—or “Pease,” after the late Rep. Donald J. Pease, R-Ohio— taxpayers lose 3 cents of itemized deductions for each dollar of income above the Pease limits (beginning at the same level as PEP), not to exceed 80 percent of total deductions.

This translates into an extra 0.9 percent to 1.2 percent tax, depending on the taxpayer’s marginal bracket.

DS-IRS-brackets-table-4

The Alternative Minimum Tax begins at income levels of $53,900 for singles and $83,800 for married couples.  The initial tax rate is 26 percent and rises to 28 percent at an income level of $186,300 for both single and married taxpayers.  The corresponding income levels for “married filing separately” taxpayers are $41,900 and $93,150.

The initial AMT exemption amounts—$53,900 for singles, $83,800 for married couples, and $41,900 for “married filing separately”—begin to phase out at respective income levels of $119,700, $159,700 and $79,850.  The 25 percent phaseout increases the 26 percent rate to 32.5 percent and the 28 percent rate to 35 percent.

DS-IRS-brackets-table-5

The exclusion for public transportation benefits remains unchanged at $130 per month, while the qualified parking exclusion will rise by $5 to $255.

The annual gift tax exclusion also is unchanged at $14,000 per person, while the estate tax exemption will rise from $5.43 million to $5.45 million.

Penalty for the Uninsured

Under the Affordable Care Act, also known as Obamacare, individuals who choose not to get health insurance through government exchanges, on their own or via their employers have to pay an additional tax.

If you do not have health insurance coverage in 2015, you’ll have to pay the higher of these two amounts:

  • 2 percent of your yearly income above the tax-filing threshold (generally about $10,150) up to a maximum cost of the national average premium to purchase a Bronze Plan from the federal healthcare exchange. Or …
  • $695 per person ($347.50 per child under 18). The maximum penalty per family using this method is $2,085.

Those costs have more than tripled from calendar year 2014 when the penalty was $95 per person or 1 percent of household income.

New Tax Filing Date for 2016

This year individuals will have a few extra days to put their paperwork together and file it with the IRS. Taxpayers will have until April 18, 2016 to file their 2015 tax return, special thanks to District of Columbia holiday called Emancipation Day. Taxpayers in Maine and Massachusetts get an additional day to accommodate Patriots Day, with tose state returns due April 19, 2016