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Money-Saving Tax Tips

Exemptions, Deductions & Allowances to Increase Your Return for 2016

The Protecting Americans from Tax Hikes Act created or renewed a handful of regulations that might affect your 2016 tax return. You also should be aware of increased health-insurance-related fines, energy-efficiency-credit extensions and overtime-pay tax obligations.

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Age Fotostock

Only a few weeks remain in 2016, and tax-filing season will be here before you know it.

Many of the new or renewed tax laws that affect 2016 filers are the result of the Protecting Americans from Tax Hikes (PATH) Act, which was signed into law in December 2015, says Eric Smith, who is a spokesperson for IRS. The PATH Act includes items that will affect filers in all income levels, from those who rely on the earned-income tax credit (EITC) to people who give funds to charity from their individual retirement account (IRA).  

Here’s what you should know for your 2016 tax return.

ACA FINES. The Affordable Care Act’s (ACA) individual shared-responsibility provision, which is known otherwise as the penalty for eschewing health-insurance coverage, increased significantly for the 2016 tax year. Those who don’t have health insurance will be assessed a penalty of either 2.5 percent of their household income or $695 per adult and $347.50 per child, whichever is higher. That’s an increase from 2 percent of income or $325 per adult and $162.50 per child for the 2015 tax year.

The penalties are intended to motivate consumers to sign up for health-insurance coverage. (Editor’s note: After 2016, the penalties increase based on the cost of living. The next open-enrollment period for 2017 is Nov. 1, 2016 to Jan. 31, 2017.)

Consumers who didn’t earn enough in 2016 to file a tax return are exempt. The thresholds vary by age and filing status and range from $10,300 (single and under age 65) to $23,100 (married filing jointly, both spouses over 65). You also are exempt if you can’t find a coverage plan that costs less than 8.13 percent of your household income, says Mark Luscombe of CCH, which is a tax-preparation software company. This exemption might be possible in areas where only premium plans exist, Luscombe says.

If you experienced bankruptcy, a death in the family, domestic violence, a flood, homelessness, medical expenses or other hardships during the 2016 tax year, you might qualify for a hardship exemption. You can find a complete list of exemptions at healthcare.gov or you can ask a tax professional whether you qualify for an exemption.

ABLE ACCOUNTS. The Achieving a Better Life Experience (ABLE) Act of 2014 allows states to create tax-sheltered savings accounts for disabled people and their families. Unfortunately, at press time, only Florida, Nebraska, Ohio and Tennessee have operating ABLE programs. Thirty-one other states and District of Columbia still are hashing out their program’s regulations.

What’s good news is that an amendment in the PATH Act allows 2016 qualifiers to use Florida’s, Nebraska’s, Ohio’s or Tennessee’s program, even if they don’t live in those states. Each state’s program has four to 14 different investment options that have varying degrees of risk. You can compare the plans and find out how to sign up at ABLE National Resource Center.

ABLE accounts are similar to 529 college-savings plans, which allow contributions on behalf of a beneficiary to increase tax-free and be used for limited, specific purposes. An account can be established for people who became disabled before age 26. Family, friends and others can contribute up to $14,000 per year. The contributions aren’t tax-deductible, but the earnings increase tax-free and can be used for assistive devices, housing, medical expenses, transportation and other goods and services, Smith says.

TAX-CREDIT DELAYS. Tax filers who receive EITC and Additional Child Tax Credit (ACTC) returns, which are refundable credits that a filer can collect even if he/she doesn’t owe taxes, will wait longer for their payments in 2017.

Typically, people who qualify for these credit payments are among the earliest wave of January filers and receive their returns from IRS in less than 21 days, Smith says. However, new antifraud rules that were implemented as part of the PATH Act now require IRS to hold ACTC and EITC payments until Feb. 15, so the agency has more time to receive wage and withholding data from employers and to crack down on refund fraud that’s related to incorrect wage and withholding claims. IRS estimates that 22 percent to 26 percent of ACTC and EITC payments were issued incorrectly in 2013, 2014 and 2015.

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