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Preliminary IRS data for TY 2015 shows increases in income and ACA-related penalties

IRS has released its preliminary data of individual returns of income for Tax Year (TY) 2015 versus TY 2014 (see https://www.irs.gov/uac/soi-tax-stats-individual-income-tax-returns ). The numbers show increases in many income items, no doubt reflecting an improving economic environment. They also show increased payments to health savings accounts, a big drop in the penalty for early retirement plan withdrawals, and dramatic increases in penalties and surtaxes related to the Affordable Care Act (ACA).

Income data reflects better economic environment. The preliminary data for TY 2015 vs TY 2014 shows significant increases in almost every category of income. For example:

  • The total number of returns increased only 1.3%, but total adjusted gross income (AGI) reported on all returns increased 5.2%.
  • The total amount of salary and wages reported on all returns increased 5.1%.
  • The number of returns reporting taxable pension and annuity income fell 0.5% (perhaps reflecting the falloff in use of pensions by employers), but the total amount of taxable pensions and annuities reported on all returns rose by 3.7%.
  • No doubt reflecting the increasing number of taxpayers compelled to take required minimum distributions (RMDs) because they attained age 70.5, the total number of returns reporting taxable IRA income rose 3.3%, while the total amount of reported taxable IRA income rose by 7.1%, to a total of $250,683,526,000.
  • The number of returns reporting ordinary dividends declined slightly, but the total amount reported increased 5.1%.
  • The number of returns reporting qualified dividends remained about the same, but the total amount of such dividends reported on all returns increased by a hefty 9.4%. However, the total amount of capital gain distributions (includes capital gain distributions reported on Form 1040 and Schedule D) declined by 7%. The total amount of net capital loss reported increased by 5.8%.
  • The total amount of business or professional net income was up 6.1%, while the total amount of business or professional net loss reported declined 2.9%.
  • The number of returns claiming partnership and S corporation income rose by 2.7%, and the total amount of such income reported increased 5%. The number of returns claiming partnership and S corporation losses rose by 0.7% but the total amount reported increased by 12.7%.

Adjustments to income to arrive at AGI, deductions, and credits. The preliminary statistics of income for TY 2015 versus TY 2014 include the following data:

…Total number of returns reporting payments to IRAs fell 2.7% and the total amount of such payments reported fell 1.4%.
…Payments to health savings accounts rose by 5.7%.
…In yet another reflection of better economic times, the number of returns reporting a penalty on early withdrawal of savings (presumably retirement savings) declined by 24.9%, and total amount of penalty reported declined by 40.7%.
…The domestic production activities deduction was claimed on 0.7% more returns, and the total of such deductions claimed on all returns increased 10.7%.
…The total taxes paid deduction claimed on all returns increased by 6.2%, and the total state and local income taxes claimed on all returns increased by 7.2%.

ACA-related penalties and surtaxes. The ACA, also known as Obamacare, included three related penalties and payments that are reflected on individuals’ tax returns. The preliminary statistics of income for TY 2015 versus TY 2014 show sharp increases in all three:

1. The individual mandate of the ACA requires most legal residents of the U.S. to obtain health insurance or pay a penalty tax. The number of returns reporting this penalty tax decreased by 17.7% (no doubt reflecting the fact that more people signed up for insurance), but the amount of the penalty tax reported on all returns rose by 82.3%, to a total of $3,018,133,000.
2. The 0.9% additional medicare surtax applies to taxpayers receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately). The number of returns reporting this surtax rose by 12.5%, and the total amount of the surtax reported on all returns rose by 11.5%, to $8,599,053,000.
3. A surtax, also called the “unearned income Medicare contribution tax” or the “net investment income tax” (NIIT), for individuals equals 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). The number of returns reporting this tax rose by 7.1%, and the total amount of this tax reported on all returns rose by 4.2%, to a total of $18,331,173,000.
RIA observation: All three taxes would be repealed by the draft Obamacare replacement bill unveiled by Republicans earlier this week. The individual mandate would be repealed retroactively for months beginning after Dec. 31, 2015. The other two would be repealed after 2017. See Weekly Alert ¶  6  03/09/2017 for details.
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