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Tax Changes US Expats Can Look Forward to in 2016

 

Ines Zemelman, EAJan-01-2016

 

There have been some changes made to the IRS tax code for 2016.

 

The new year is here and a new tax season is about to begin.  The new tax year means new updates to the tax code – which is constantly evolving, as Congress makes changes to laws every year.  Here are some of changes you can look forward to this season.

 

The FEIE (Foreign Earned Income Exclusion) has been raised again.

 

In 2015, the FEIE limit was $100,800.  In 2016, it will be $101,300.  A higher FEIE limit means you are able to deduct more foreign income from your taxable income on your US expat tax return.

 

Some of the standard deductions have been increased.

 

The standard deduction is available to everyone.  It is a deduction that has been standardized based on your filing status. The standard deduction allows you to reduce your taxable income.  The standard deductions for single taxpayers ($6,300) and married taxpayers filing a joint return ($12,600) are staying the same.   For those who are filing as HOH (Head of Household), the standard deduction has been increased from $9,250 to $9,300.  If you are a US expat who has dependent children and a foreign spouse who is not required to file a US expat tax return, you may file as HOH to maximize your standard deduction.

 

Exemption amounts have been increased.

 

An exemption allows taxpayers to reduce their taxable income.  Personal exemptions include the person filing the return and any other dependents being claimed.  The personal exemption amount has changed from $4K to $4,050.  You may claim a personal exemption for each qualifying person in your household.  The benefit of claiming multiple exemptions is that you get to keep credits from the FTC (Foreign Tax Credit) to be used in the following tax year.

 

The FBAR filing deadlines were not changed for 2016 and remain the same as before, June 30.

 

In prior years, the FBAR was due on June 30 of the year following the tax year in which foreign accounts were held.  With the few exceptions, the due date for filing FBAR in 2016 remains the same - June 30. Starting in 2017 (tax year 2016), the FBAR will be due on the same day tax returns are due (April 15).  If requested, this change also provided for a six-month extension of time to file FBAR (for tax years starting from 2016). Yet, there is still no extension in this year.

 

 

Because of the tax filing deadline date falling on the same day as a holiday, there will be three more days added on to the filing deadline.

 

This year, Emancipation Day (a holiday recognized in Washington DC) falls on a Saturday.  Therefore, observance for this holiday will happen on Friday, April 15.  That means taxes won’t be due until the following Monday on April 18.  Furthermore, all US expat extensions coincide with this late filing date, so the automatic two month extension will be good through June 18.  Not to mention the fact that this year is a leap year, so taxpayers actually have an additional four days to file their US income tax returns.

 

There has been an increase in the progressive tax brackets for 2016.

 

An increase in the tax brackets was approved by Congress.  Since the United States has a progressive tax system, a taxpayer could have a tax rate of anywhere between 10% to the maximum of 39.6% - depending on his/her income level.  As a US Expat, you should know that you will most likely be paying the maximum tax of 39.6% for income that exceeds your FEIE.  This is true even if your leftover income is low and at the first glance looks like it qualifies for the 10% tax rate.  It is not. Add back the amount of excluded foreign income to find the tax rate for the remaining income. Here is where the FTC would come in handy.  Here are the updated tax brackets for 2016:

 

Tax Rate

Single

Married Filing Jointly

Head of Household

10%

$0 - $9,275

$0 - $18,550

$0 - $13,250

15%

$9,276 - $37,650

$18,551 - $75,300

$13,251 - $50,400

25%

$37,651 - $91,150

$75,301 - $151,900

$50,401 - $130,150

28%

$91,151 – $190,150

$151,901 - $231,450

$130,151 - $210,800

33%

$190,151 - $413,350

$231,451 - $413,350

$210,801 - $413,350

35%

$413,351 - $415,050

$413,351 - $466,950

$413,351 - $441K

39.6%

$415,051+

$466,951+

$441,001+

 

  

There has been an increase in the ACA (Affordable Care Act) penalties.

 

The ACA (otherwise referred to as Obamacare) was created to make affordable healthcare to every US Person.  Every person is required to have health insurance or face penalties by the IRS.  The penalties for not carrying a healthcare plan are increasing this year.  The fee was $325 for an adult and $162 for a child.  Now these penalties are being increased to $695 for an adult and $347 for a child.  As a US Expat, you are exempt from the requirement to prove essential medical coverage for yourself and your family living abroad. However, if you have persons listed on your tax return (wife or dependents) that live in the U.S., they must have coverage to avoid penalties. 

 

 

Zemelman

 

   Ines Zemelman, EA is the founder of Taxes for Expats
   She may be reached at: +1-646-397-2887
   Email: questions@taxesforexpats.com
   Web site: www.taxesforexpats.com