Tax laws undergo some minor changes every year, such as inflation adjustments, renewal of deductions, new taxes, and tax increases. As the 2015 tax filing season has started, it is important to stay informed on the latest changes to the tax code and how they can affect you. This article will explore three key areas where some of the biggest changes have been made to the Internal Revenue Code (IRC).
Affordable Care Act Changes for 2015
The Affordable Care Act is the law of the land that requires most individuals to have health insurance or risk paying a tax penalty. Per the federal health law’s individual mandate, individuals above certain income thresholds should get health insurance coverage if they are not covered by public programs such as Medicare and Medicaid. If health coverage is not supplied through his or her job, an individual may choose to purchase an individual private policy or get covered under the state-operated insurance marketplace.
Those who do not have the minimum level of coverage should be wary because they will be subjected to IRS penalties at the end of the tax year. Here is a brief summary of the non-compliance penalties: the penalty for the 2014 tax year is one percent of income for both individuals and families or $95 for single adults and $285 for families, whichever is greater. This may not seem bad at all when compared to insurance premiums; however, the fact is, the penalty structure is formulated to increase over time. In 2015, the fine will rise significantly to $325 per adult and up to $975 for a family or 2% of income. In 2016, the penalty will be sky high: $695 per individual and $2,085 for a family or 2.5% of income.
Small-business owners obtaining insurance through the Small Business Health Options Program (SHOP) marketplace can qualify for tax credits and tax breaks. Businesses that employ less than 25 full-time workers and pay average annual salaries of less than $50,000 can make use of this program for group health coverage. Per ObamaCare’s employer mandate, businesses with more than 100 full-time employees will have to provide health coverage to at least 70% of their workers starting in 2015. This rule does not apply to companies with 50 to 99 full-time workers until Jan 1, 2016.
New Limits on IRA Rollovers in 2015
Finally, some good news from the IRS! Contribution limits to 401(k), 403(b), and other qualified retirement plans have now increased by $500, bringing them to $18,000 in 2015. The catch-up contribution limit for individuals who are 50 or older has also increased by $500.
A new year ushered in a new rule from the IRS that put restrictions on the number of IRA-to-IRA rollovers. Starting in 2015, taxpayers can do only one rollover in a 12-month period, irrespective of how many IRAs the individual has. A second 60-day IRA-to-IRA rollover could result in a 10% early withdrawal penalty, and the distribution will be subject to taxation. The old rules allowed individuals to do one such rollover per year for each IRA that they owned, which created penalty-free and interest-free loans. Sadly, the new change limits taxpayers from taking such tax-free rollover provisions.
There is no reason to be alarmed, since this new rule change does not apply to traditional IRA to Roth IRA conversions or trustee-to-trustee transfers. This direct rollover transfer method lets investors transfer funds any number of times between IRA accounts without taking control of the money. This transfer is tax-free and does not trigger the 10% early withdrawal penalty. Get expert guidance if you hold multiple IRA accounts and are planning to do transfers but are not confident about whether they fall within the rollover limit or the distribution is tax-free.
2015 Tax Rates and Other Inflation Changes
For 2015, inflation-based adjustments are made for all tax brackets: the top 39.6% tax bracket, for example, will start at $413,200 for unmarried filers (up from $406,750 in 2014) and $464,850 for married joint filers (up from $457,600). The standard deduction for the 2015 tax year is $6,300 for single filers and $12,600 for married joint filers. The personal exemption gets an increase of another $50 to $4,000 in 2015. Individuals in the 25%, 33%, and 35% federal income tax brackets will pay the same 15% on capital gains, but taxpayers in the 39.6% bracket will have to pay more, as they will now be taxed at a 20% rate on long-term capital gains.