In this article, we'll continue the approach taken in the past, explaining the significant income tax changes in 2015. That discussion will include changes to Social Security and Medicare, federal income tax standard deductions and exemptions, mileage deduction rates, earned income credits, Hope and Lifetime Learning tax credits, in addition to changes to retirement accounts such as the 401(k), 403(b), IRAs, and Roth plans.
The filing deadline for the year 2015 is Friday April 15, 2016. Information appearing in this article applies to changes effective in 2015, which then become part of a taxpayer's return in 2016.
The American Taxpayer Relief Act of 2012, or ATRA, added a seventh federal income tax bracket (39.6%) in 2013, while the remaining six rates were unchanged. In 2015, taxable incomes above the following thresholds now fall into the 39.6% bracket: Married Filing Separately ($232,425), Unmarried Individuals ($413,200), Head of Household ($439,000), and Married Filing Joint Returns ($464,850).
ATRA also made several important changes to the treatment of capital gains, and eliminated sunset provisions, adding stability and permanence to these rules:
Unmarried individuals (Single) with income over $200,000 and Married couples filing jointly with income over $250,000 will also pay a 3.8% Medicare surcharge tax on investment income; thereby increasing the effective rate on capital gains to 23.8% (20% + 3.8%).
As was the case in the past, all wages earned in a given year are taxed at the 1.45% rate for Medicare. In 2015, wages paid in excess of $200,000 for Unmarried filers and in excess of $250,000 for Married filers will be subject to an extra 0.9% tax.
Social Security tax remains at 6.20%, while the wage limit, or Social Security maximum, increases from $117,000 to $118,500. The Cost of Living Adjustment (COLA) was 1.7% in 2015, raising the SSI limit to $2,663 per month.
ATRA also increased the estate and gift tax rate from 35 to 40%. The gift tax and estate tax exclusion continue to be indexed for inflation and remain at $14,000 (the same as 2014 and 2013) and increase to $5.43 million respectively in 2015.
According to the IRS, approximately two out of every three taxpayers claim the standard deduction on their income tax returns. In 2015, there was a change to the standard deduction amounts for all individual taxpayers, including:
The amount deducted for each exemption claimed on a federal income tax return in 2015 is $4,000, which is an increase of $50 from the 2014 amount.
Studies funded by the IRS demonstrate it continues to be more expensive to drive a car. The standard mileage deductions (or reimbursement rates) appear in the following table:
|Category||Rate (January to December)|
|Business Miles||57.5 cents per mile|
|Charitable Services||14.0 cents per mile|
|Medical Travel||23.0 cents per mile|
The earned income credit applies to working taxpayers that have income falling below certain thresholds. The qualification threshold depends on the number of persons in each family. The thresholds in 2015 to qualify for this credit include:
The tax credits themselves also increased in 2015, with the maximum received as indicated below:
ATRA also eliminated the sunset provision for Coverdell Education Savings Accounts. Taxpayers with modified adjusted gross income less than $110,000 ($220,000 if filing a joint return), may be eligible to contribute to a Coverdell ESA. There are no limits on the number of separate Coverdell accounts that can be established for a beneficiary, but the total of all contributions to a single beneficiary cannot exceed $2,000 each tax year.
The maximum Hope Scholarship Credit, available for the first two years of post-secondary education, remains at $2,500 in 2015. This includes 100% of qualifying tuition and related expenses not in excess of $2,000, plus 25% of those expenses that do not exceed $4,000.
The maximum Lifetime Learning Credit is $2,000 in 2015. The credit applies to 20% of the first $10,000 of a taxpayer's out-of-pocket expenses for all students attending an institution of higher education. A taxpayer cannot claim the Hope Credit and the Lifetime Learning Credit in the same tax year for the same student.
In 2015, the taxpayer's modified adjusted gross income is used to determine the reduction in the amount of the Hope Scholarship and Lifetime Learning Credits. Reductions start for taxpayers with an AGI in excess of $80,000, or $160,000 for those filing joint returns for the Hope Credit. The income threshold for the Lifetime Learning Credit increases to $55,000 or $110,000 for those filing joint returns in 2015.
The contribution limits for 401(k) as well as 403(b) plans increases to $18,000 in 2015. Catch up contributions also increase to $6,000. The contribution limit for SIMPLE retirement plans increase to $12,500, while the catch up contribution limit remains at $2,500.
In 2015, the contribution limits for Traditional IRAs and Roth IRAs is $5,500, with a catch-up contribution of $1,000 for anyone age 50 or older by the end of the calendar year. The income limits for individuals willing to fund Traditional IRAs as well as Roth IRA plans increased modestly again in 2015. The income phase-out threshold for Roth IRAs now starts at $183,000 for those filing joint returns, which is an increase of $2,000. The phase-out threshold for taxpayers filing their returns as Head of Household or Single is now $116,000, which is a $2,000 increase over last year's value.
The income phase out limits that apply to Traditional IRAs increased again for those individuals covered by a retirement plan at work. The 2015 income phase-out limits start at $98,000 for joint filers (an increase of $2,000 from 2014), and increases to $61,000 for those with a filing status of Single or Head of Household (an increase of $1,000 from 2014).
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