FEBRUARY 17, 1997
Personal exemptions are worth $2,550 for 1996.
For people who do not itemize their deductions, the standard deduction has increased. The new amounts are $4,000 for single people who cannot be claimed as another person's dependent; $5,900 for heads of households; and $6,700 for married people filing jointly or qualifying widow(er)s. People who are at least 65 years old or blind get an extra amount added to their standard deduction. The standard deduction is limited to the larger of $650 or earned income for people who can be claimed as dependents by another, and to $3,350 for married persons filing separately.
The earned income tax credit (EITC) will increase in 1996 for working people who qualify. The amount a person can earn and still be eligible for the credit increases, too.
Another change to the EITC relates to people with investment income, such as interest, dividends, rents, and royalties. No one who has more than $2,350 in investment income may claim the EITC.
And finally, the EITC will be denied to any individual who is not authorized to work in the U.S. In order to claim the credit, the taxpayer (and spouse, if married) must have a valid Social Security number.
A valid taxpayer identification number will be required for each dependent or qualifying child as a condition for claiming a dependency deduction or a dependent care credit for the child.
Other changes affecting this year or future tax years will affect punitive damages received for personal injury or sickness, qualified state tuition programs, individual retirement account (IRA) contributions for spouses who do not work, a nonrefundable credit for certain adoption expenses, and medical savings accounts.
The 1996 standard mileage rate for using one's car for business is up a penny to 31 cents a mile. The special rate for rural mail carriers is up to 46.5 cents a mile.
And for 1996, the maximum wages and self-employment income subject to Social Security tax is $62,700.
The deduction for expenses in maintaining a home office has been clarified to permit a deduction for expenses related to a storage unit regularly used for inventory or product samples for tax years beginning after December 31, 1995.
Employers who were to begin making tax deposits electronically as of January 1, 1997, now have until July 1, 1997, to begin using the Electronic Federal Tax Payment System.
The exclusion for employer-provided educational assistance, which had expired December 31, 1994, has been retroactively extended through taxable years beginning before June 1, 1997.
Other business changes for this year or future tax years affect depreciable property, work opportunity tax credit, orphan drug tax credit, excise taxes, and health insurance deductions for self-employed persons.
For more information on tax changes, call 1-800-829-3676 and get Publication 553, Highlights of 1996 Tax Changes.
The IRS has tax forms, publications, and other information available online. Access through the Internet via the World Wide Web (http://www.irs.ustreas.gov); file transfer protocol (ftp.irs.ustreas.gov); or Telnet (iris.irs.ustreas.gov). To access by modem, dial (703) 321-8020.
For those with access to a fax machine and not a computer, the IRS can provide the most commonly used forms, many of the instruction sheets and the TeleTax topics. Dial (703) 487-4160 from the fax machine.