Depending upon whom you listen to 2016 will either be the year of the great financial meltdown, a year of opportunity or more of the same. Certain realities are within your grasp. You can utilize the new year to gain control of your finances through budgeting, reigning in unnecessary spending, putting some of your credit cards in the drawer, and consolidating and reducing your debt. Experts also advise that if you can, 2016 would be a good year to purchase a home.
Other realities are out of your grasp. These are the new regulations and requirements passed down to consumers from the federal government. Here is a brief overview of some of the more pertinent changes that will impact your personal finances in 2016.
Filing date: 2016 gives you a break, instead of April 15, filing day is April 18 due to the fact that the 15th falls on Emancipation Day. If you happen to be living in the New England states, where they celebrate Patriot’s Day, you have an added bonus—your filing deadline is April 19.
Tax brackets: The tax brackets that are used to define different classes of taxpayers will rise upwards slightly, by roughly 0.4%.
Obamacare: If you have not signed on to a qualifying health care plan, you will face a stiffer penalty in 2016. Your penalty will increase to 2.5% of your income.
Personal exemptions and standard deductions: Personal exemptions will increase by $50 in 2016, meaning that most taxpayers will have a personal exemption of around $4,050. The standard deduction for head of household will also rise in 2016 by $50. All other status deductions remain the same as last year.
Earned income credit: There will be a modest increase in the maximum amount of earned income credit you can take, less than $30 across all scenarios.
Health savings accounts: If you have a family health savings account, you will be able to contribute $100 more than last year. For individuals, there is no change.
2016 brings some changes to social security too, here are the highlights:
Your monthly check: You may need more money to meet your living expenses, but 2016 will not be the year receive it. Monthly social security checks will not increase.
Social security cap: On the other hand, if you are still working, and not withdrawing social security benefits yet, the ceiling of $118,500 from 2015, beyond which no social security contributions are taken, will not change. Usually, the ceiling adjusts to cost of living, but currently the CPI-W figure is static.
File and Suspend: Many social security beneficiaries have taken advantage of a procedure whereby they file for full social security benefits, and then suspend them. You can do this until age 70, and each year that one files and suspends, he earns an extra 8% added to his social security check, potentially resulting in as much as a 32% increase in what he receives from the system. The filing itself then enables their spouse, if he or she is the lower wage earner, to receive social security benefits, even if the application for benefits is suspended. The government has done away with this, from May 1, 2016 forward, if you file and suspend your spouse will be ineligible for benefits.
Lump-sum payout: Previously, you could reach the age of 66, suspend your payments and when you are ready, say at age 70 to collect, you could choose to have your monthly checks increased by the suspended amount, or to receive a lump sum, which in some cases could be quite a healthy check, as much $250,000. The government has stopped this too. After May 1, 2016, no more lump sum payments.
For the most part, regulatory modifications set for 2016 will not bring significant changes to your personal finances. The small increase in the prime interest rate announced a short while ago is not resulting in any predictions for changes in home mortgage lending or consumer loans. Credit cards and other loans that are issued according to variable interest rates may feel more of a pinch. See our article “Federal Interest Rate Hike: Does it Matter?” for a more detailed discussion.
Other than general unease over an uncertain global economic market, 2016 should be much like 2015.