Everything To Know About The Economic Growth and Tax Relief Reconciliation Act

Everything To Know About The Economic Growth and Tax Relief Reconciliation Act

The Economic Growth and Tax Relief Reconciliation Act of 2016 is one of the most significant tax law packages to be passed by Congress in recent times. It provides many new tax deductions and tax credits that are available to many taxpayers.Here are just a few:

Most of the Tax Rates have been REDUCED again! Most tax rates have been decreased by 1/2% and there is a new 10% tax rate applied to all filers. Pension and Individual Retirement Plans (IRA’s) Contributions Increased Allowable contributions to IRA’s, both the Roth and the traditional, have been increased to $3,000, ($3,500 if you are age 50 or older in 2002). Contributions to employer sponsored pension plans such as 401K’s are also increased. There is also a new “catch-up” contribution available for taxpayers at least 50 years old.

New Retirement Savings Contribution Credit

You are allowed to take $1,000 credit as qualified retirement savings contributions. However, you cannot take this credit if you adjusted gross income (AGI) on line 36 is more than $25,000 ($37,000 if head of household, $50,000 if married filing jointly).

New Tuition and Fees Deduction

Using this, you can deduct upto $3000 for the fees and tuition expenses and is applicable for yourself, your spouse and your other dependents.
This is a new “above the line” deduction. The education tax credit is still available, however, you cannot take both the deduction and the credit for the same student.
The Hope and Lifetime credits are also still in effect. The Hope Scholarship credit is a nonrefundable credit of up to $1,500 per eligible student. The Lifetime Learning credit is a nonrefundable credit of up to $1,000.

New Deduction for Educators

If you are an educator, you may be able to deduct up to $250 of expenses you paid even if you do not itemize.

Student Loan Interest Deduction

Interest on student loans may now be deducted whenever paid and regardless of the age or the loan.

Earned Income Credit – Expanded & Simplified

New rules apply to determine who is a qualifiying child for purposes of the child tax credit and earned income credit. In addition, nontaxable earned income and modified adjusted gross income are no longer used to figure the credit. Instead, taxable earned income and AGI are used to determine if you can take the credit and the amount of the credit. Alternative minimum tax not longer reduces the amount of the credit. You may be able to take the credit if:
You lived with a child and your total earning was equal to less than the value of $33,178 or
You didn’t have a child living with you and the total earnings for that time was less than $11.06k
Extension and Expansion of Adoption Tax Benefits Credit and exclusion limits are increased. You may be able to take a credit up to $10,000 per child for qualified adoption expenses you paid.

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