Key Changes to Form 1040
Each new filing season may bring changes to the Form 1040, U.S. Individual Income Tax Return, as well as draft instructions for Form 1040 and any related Schedules, and this year is of no exception. The following highlights some of the changes to 2016 Form 1040, its Schedules and other Forms, which can be found on the IRS website at www.irs.gov. The draft Form 1040 and Instructions are expected to track what will appear in the final Form 1040 and Instructions this year since "tax extenders" common to past years have either been made permanent or run through 2016. Any year-end tax legislation from Congress likely will have a prospective impact only into tax year 2017 and beyond.
The filing deadline for 2016 individual income tax returns moves to Tuesday, April 18, 2017, because of the Emancipation Day holiday in the District of Columbia. As with previous filing seasons, taxpayers are afforded an automatic six-month extension by either filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, or by making an electronic payment.
Additional payment methods
The 2016 Draft 1040 Instructions describes the IRS mobile application, IRS2GO, through which taxpayers can access “Direct Pay” or “Pay By Card” options. In addition, there is a new option for taxpayers who wish to pay their taxes in person with cash. The option is provided through retailers who have partnered with the IRS. In-person cash payments are limited to a maximum of $1,000 per day per transaction; in addition, there is a fee associated with in-person cash payments.
Delayed refunds for certain credits
The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) generally requires that no credit or refund for an overpayment for a tax year will be made to a taxpayer before the 15th day of the second month following the close of that tax year, if the taxpayer claimed the earned income tax credit (EITC) or additional child tax credit on the return. This provision in the PATH Act applies to credits or refunds made after December 31, 2016. Some taxpayers may find that they will not receive any refund until after February 15, 2017.
The Affordable Care Act (ACA) requires all individuals to either carry minimum essential health coverage, unless exempt, or make shared responsibility payments. For 2016, the shared responsibility payment has increased compared to 2015. The 2016 shared responsibility payment will be the higher of: (1) 2.5 percent of the taxpayer’s annual household income above the tax filing threshold, capped at the national average of the bronze plan premium, or (2) $695 per adult and $347.50 per child under the age of 19 to a family maximum penalty of $2,085.
The health coverage tax credit (HCTC) is a tax credit that pays a percentage of health insurance premiums for eligible taxpayers and qualifying family members. This is a separate credit from the Code Sec. 36B premium assistance tax credit and has its own eligibility requirements. Some taxpayers may have received advance HCTC payments beginning in July 2016. Instructions for Form 8885 provide more detail for the HCTC, including how to report advance payments.
For 2016, if a taxpayer was covered by a retirement plan at work, and his or her filing status is single or head of household, and his or her modified adjusted gross income (MAGI) is equal to, or less than, $61,000, the traditional IRA contribution is fully deductible. Further, taxpayers whose MAGI is more than $61,000 but less than $71,000 (more than $98,000 but less than $118,000 if married filing jointly or qualifying widow(er)) are entitled to a reduced deduction. However, if a taxpayer’s spouse was covered by a retirement plan, but the taxpayer was not, the taxpayer’s IRA contribution may be fully deductible if the MAGI is less than $194,000.
Deductions and exemptions
The 2016 standard deduction for single filers and married individuals filing separately is $6,300. For married filers and qualifying widow(er)s, the deduction is $12,600. For heads of household, the standard deduction is $9,300.
Itemized deductions for taxpayers with adjusted gross income above certain amounts may be reduced. The applicable amounts are $259,400 for single individuals, $411,300 for married individuals filing jointly or a surviving spouse, $155,650 for married couples filing separate returns, and $285,350 for heads of household.
The 2016 exemption amount is $4,050 per exemption, slightly increased from 2015’s exemption amount of $3,950. However, phaseout occurs when adjusted gross income (AGI) is greater than $311,300 for married individuals filing jointly or widow(er)s, $285,350 for heads of household, $259,400 for single filers, and $155,650 for married individuals filing separately.