Tax laws are always changing, and it's important when tax time starts to come around to make sure you're up to date on the latest events. The basic structure of tax rates stayed largely the same in 2015, but some of the more subtle nuances could affect you much differently as you prepare your return in the coming months than it has in the past. Let's look at what's happened to tax rates in 2015 and what you should watch out for when you start working on your taxes.
Taxes: same rates, slightly different brackets
The last major change to the tax-rate structure came in 2013, with the addition of the top bracket of 39.6%. Currently, taxpayers have to deal with seven different tax rates on ordinary income, starting at 10% and then climbing to 15%, 25%, 28%, 33%, and 35% before hitting the top rate. Similarly, rates on qualified dividends and long-term capital gains income remained the same in 2015, with a 0% rate applying to those in the 10% and 15% ordinary income tax brackets, a 20% maximum rate applying to those in the 39.6% bracket, and a 15% maximum for those in the brackets in between.
What is different for 2015, though, is the set of income ranges that those rates cover. The 2015 tax brackets include slight adjustments to reflect inflation. So for instance, in 2015, the 15% bracket for joint filers extends from $18,450 to $74,900. That's up from a range of $18,150 to $73,800 for the same bracket in 2014. The $300 increase in the lower bound means that taxpayers who have taxable income of more than $18,450 would pay $15 less on their taxes for the same amount of income in 2015 compared to 2014, and the $1,100 increase in the upper bound would produce savings of $110 for those making $74,900 or more.
Bigger deductions and exemptions
Annual increases in the standard deduction and personal exemption will also effectively reduce the tax rate for many taxpayers. For 2015, the standard deduction for single filers rose $100 to $6,300, while the same number for joint filers jumped $200 to $12,600. Personal exemption values climbed $50 to $4,000 per person. Those higher values help you save on taxes by reducing your taxable income, producing tax reductions at your marginal tax rate.
2 surtaxes that can boost your tax rate
On the downside, in addition to the standard income tax, some extra surtaxes can apply to certain taxpayers to boost their overall tax rate. The net investment income tax applies to single filers with adjusted gross income above $200,000 and to joint filers earning more than $250,000. The 3.8% surtax applies only to interest, dividends, capital gains, and other types of investment income, effectively raising the tax rate on that income by 3.8 percentage points. The more of your money you get from portfolio income, the harder this tax hits.
Another provision imposes additional Medicare tax on earned income above those same threshold amounts. The 0.9% tax applies only on income from wages, salaries, and self-employment income. This surtax can also raise your overall tax rate, depending on how much of your income you get from work.
Unlike the regular tax brackets, the threshold amounts for these surtaxes don't change with inflation. Therefore, if your earnings increase over time, you'll want to keep these two surtaxes in mind to ensure that you don't forget to pay them if you climb above the income thresholds.
Obamacare taxes climbed in 2015
The Affordable Care Act imposes a tax penalty for not having minimum essential healthcare coverage. The tax rate on that penalty climbed in 2015, going from $95 per adult last year to $325 per adult. The family maximum climbed from $285 to $975.
A higher penalty applies to those with incomes above a certain level. To determine that amount, you take a percentage of your income above the threshold for having to file a tax return. In 2015, that percentage doubled to 2% compared to 2014's 1% rate.
2015 was a relatively quiet year on the income tax front. By knowing how the subtle changes in tax rates and related tax laws apply to your situation, you'll be in a better position to understand how to plan your taxes to pay as little as possible this tax season.
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