Highlights from the Protecting Americans from Tax Hikes Act of 2015

On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) was signed into law.  Not only is this an “extender” tax bill, which we’ve become accustomed to the past few years, but it also makes some tax provisions permanent.  “Permanent,” for tax law purposes, means that the tax provision is not set to expire or sunset.  It is tax law until a new tax bill is introduced and passed by Congress and the President.  Some items made permanent by the PATH Act include, but are not limited to:

1. American Opportunity Tax Credit. This credit is an enhanced version of the Hope education credit.  It is available for up to the first four years of qualified higher education expenses per student.  The credit is up to $2,500 with up to 40% being refundable.  There are certain Modified AGI phase-outs.
2. Child Tax Credit. The child tax credit and the refundable additional child tax credit are now permanent.  The child tax credit is available for taxpayers with AGI under certain thresholds, up to $1,000 credit per qualifying dependent under age 17.  The additional child tax credit is available and is refundable to the extent of 15% of the taxpayer’s earned income in excess of $3,000.
3. Charitable Deductions from IRAs. The Qualified Charitable Distribution (QCD) provision is available for individuals age 70 ½ or older.  Instead of taking the Required Minimum Distribution (RMD) directly from an IRA, the taxpayer may transfer from his or her IRA directly (by the trustee) an amount to a qualifying charity.  This can count towards the annual RMD amount.  The maximum amount that can be transferred under the QCD provision is $100,000 per individual, per year.  This provision allows taxpayers to make charitable contributions, but they neither deduct it as an itemized deduction nor do they report the distribution in taxable income.  For older taxpayers who don’t itemize, this keeps income down, which may keep Social Security income from being taxed, and it also keeps AGI down for potential Premium Tax Credit calculations.
4. Code Section 179 Expensing. This tax provision is relevant for most business owners, including farmers.  Before the PATH Act was passed, for 2015 we were set to have a maximum Section 179 expensing available of $25,000.  With the PATH Act in place (retroactive to January 1, 2015) business owners now have up to $500,000 available for 2015 Section 179 expensing.  The overall investment limit is $2 million before phase out of Section 179.  These amounts will also be indexed for inflation beginning in 2016.  This provision, along with the IRS announcing in late November 2015 that the de minimis election a business can substitute for its capitalization policy can be increased from $500 to $2,500, effective January 1, 2016, now allows for businesses and farmers to take advantage of increased expensing limits.  Please look into developing a capitalization policy or updating yours if you already have one in place. 

At this time, the Affordable Care Act is still in place for 2015 and future years.  The PATH Act did not make any significant changes to the Affordable Care Act.  As a reminder, for 2015, individuals were required to have health insurance or otherwise pay a penalty.  The penalty is reported on your 2015 individual income tax return.  For 2015, the penalty for not having health insurance is the greater of 2% of your household income above the 2015 filing threshold or $325.  The minimum penalty of $325 is per adult in your household.  The penalty is $162.50 per child under the age of 18.

Please note that these amounts change for 2016.  The penalty for not having health insurance in 2016 is the greater of 2.5% of your household income above the 2016 filing threshold or $695.  The minimum penalty for 2016 of $695 is per adult in your household.  The penalty is $347.50 per child under the age of 18. 

Please note that for 2015, you may receive one or more of the following forms when it comes to health insurance reporting: Form 1095-A, 1095-B, or 1095-C.  If you went to the Marketplace for health insurance, you should receive Form 1095-A, which is needed in preparing your 2015 individual income tax return.  If you received your health insurance through a private insurance plan you purchased on your own, you should receive Form 1095-B from the insurance company.  If you received your insurance through your employer, and your employer is an applicable large employer, you should receive Form 1095-C.  In some cases, depending on your employer’s health insurance plan, you may receive both Form 1095-B and 1095-C.  Again, all of these forms will be needed in preparing your 2015 individual income tax return.

NOTE: Due to a recent IRS announcement, insurance companies and applicable large employers have until March 31, 2016, to issue Forms 1095-B and 1095-C to individuals.  While we appreciate having all of your tax information forms available in preparing your individual income tax return, do not wait for Form 1095-B or 1095-C if you have all your 2015 tax information.  We appreciate having the majority of your tax information sooner, rather than later.

If you have any questions regarding the Affordable Care Act or the Protecting Americans from Tax Hikes Act (PATH Act), please contact your local Hawkins Ash representative. Read more about the PATH Act.

Read more from our January Tax and Business Alert newsletter.

Curt Bach

I joined Hawkins Ash CPAs in August 2010, and am currently the Director of Tax. From the Firm's Medford office, I provide a variety of tax services, including trust and estate tax preparation and planning. I provide these services to small business, individual, trust, estate, and non-profit clients.