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Tax Law Changes for Individuals for the 2006 Tax Year
Alternative Minimum TaxFor tax year 2006, the exemption amount for alternative minimum tax (AMT) has been increased as follows:
* Single --$42,500
* Married filing jointly or surviving spouse -- $62,550 * Head of household -- $42,500
* Married filing separately -- $31,275 Archer MSA Limits Increased
For Archer MSA purposes for 2006, the minimum annual
deductible of a high deductible health plan increased to $1,800 ($3,650 for
family coverage). The maximum annual deductible of a high deductible health
plan increased to $2,700 ($5,450 for family coverage). The maximum
out-of-pocket expenses limit increased to $3,650 ($6,650 for family coverage). Restrictions on Charitable Contributions
Cash contributions.
All cash contributions made in tax years beginning after
August 17, 2006, to any qualified charity must be supported by a dated bank
record or a dated receipt. The tax year for most individual taxpayers begins on
January 1.
Clothing and household items.
Beginning with contributions made after August 17, 2006, no deduction is allowed for most contributions of clothing and household items unless the donated property is in good used condition or better.
Earned Income Credit Amounts Increase
Earned income amount.
The maximum amount of income you can earn and still get the credit is higher for 2006 than it is for 2005. You may be able to take the credit for 2006 if:
* You have more than one qualifying child and you earn less than $36,348 ($38,348 if married filing jointly),
* You have one qualifying child and you earn less than $32,001 ($34,001 if married filing jointly), or * You do not have a qualifying child and you earn less than $12,120 ($14,120 if married filing jointly).
The maximum amount of adjusted gross income (AGI) you can have and still get the credit has also increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to
you.
Investment income amount.
The maximum amount of investment income you can have in 2006 and still get the credit increases to $2,800. Income Limits Increased for Reduction of Education Savings Bond Exclusion
For 2006, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $94,700 and $124,700. You cannot take the deduction if your MAGI is $124,700 or more. For 2005, the exclusion phased out between $91,850 and $121,8500.
For all other filing statuses, your interest exclusion is phased out if your MAGI is between $63,100 and $78,100. You cannot take a deduction if your MAGI is $78,100 or more. For 2005, the exclusion phased out between $61,200 and $76,200. For more information, see chapter 9 in Publication 970, Tax Benefits for Education.
Electric and Alternative Motor Vehicle
For 2006, the list of vehicles that are qualified hybrid
vehicles for the Alternative Motor Vehicle Credit has been expanded. The tax
credit for hybrid vehicles applies for vehicles purchased on or after January
1, 2006, and could be as much as $3,400 for those who purchase the most
fuel-efficient vehicles. Visit the IRS website at www.irs.gov
for a complete listing. Exemption Amount Increased. The amount you can deduct for each exemption has increased from $3,200 in 2005 to $3,300 in 2006.
You may lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2006, the phaseout begins
at: * $112,875 for married persons filing separately,
* $150,500 for single individuals, * $188,150 for heads of household, and
* $225,750 for married persons filing jointly or qualifying widow(er)s.
If your adjusted gross income is above the amount for your
filing status, use the Deduction for Exemptions Worksheet in the Form 1040
instructions to figure the amount you can deduct for exemptions.
Social Security and Medicare Taxes
For 2006, the employer and employee will continue to pay:
1. 6.2% each for social security tax (old-age, survivors, and disability insurance), and 2. 1.45% each for
Medicare tax (hospital insurance).
Wage limits. For social security tax, the maximum amount of 2006 wages subject to the tax has increased from $90,000 to $94,200. ForMedicare tax, all covered 2006 wages are subject to the tax.
New Option to Split Refunds Between Bank Accounts
Beginning in 2007, a new refund option is available for filers of Form 1040, Form 1040A, Form 1040EZ, Form 1040NR, Form 1040NR-EZ, Form 1040-PR, and Form 1040-SS.
Filers of these tax forms for 2006 will be able to elect to have their federal income tax refund automatically deposited into two or three accounts at a bank or other financial institution (such as a mutual fund, brokerage firm, or credit union). Individuals electing this split refund option must file Form 8888, Direct Deposit of Refund to More Than One Account, which will be available by the end of 2006.
Standard Deduction Amount Increased
The standard deduction for taxpayers who do not itemize
deductions on Schedule A of Form 1040 is, in most cases, higher for 2006 than
it was for 2005. The amount depends on your filing status, whether you are 65
or older or blind, and whether an exemption can be claimed for you by another
taxpayer.
The basic standard deduction amounts for 2006 are:
* Head of household — $7,550 * Married taxpayers filing jointly and qualifying widow(er)s — $10,300
* Married taxpayers filing separately — $5,150 * Single — $5,150
The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $850 or the sum of $300 and the individual's earned income. Standard Mileage Rates
For tax years beginning in 2006, the allowable deductions
for the standard mileage rate are as follows:
* Business miles. The standard mileage rate for the cost of operating your car changes to 44.5 cents a mile for all business miles driven.
* Charitable services. The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization is 14
cents a mile.
* Charitable services — Hurricane Katrina relief services. If you used your vehicle in giving services to a charitable organization to provide relief related to Hurricane Katrina, the standard mileage rate allowed for use of your car is 32 cents a mile.
* Medical reasons. The standard mileage rate allowed for use of your car for medical reasons is 18 cents a mile.
* Moving. The standard mileage rate for determining moving expenses is 18 cents a mile.
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