Congress weighs in late on tax changes, and other personal finance updates

• Tax rules recently extended by Congress are among several updates to key personal-finance topics
• The recent rollout of EMV credit cards has raised security concerns that experts say are overblown
• Recent changes to Social Security rules effectively will end the "file and suspend" claiming strategy

In what has become a year-end tradition, Congress this month extended several income-tax provisions that had expired, providing some money-saving options heading into the return-filing season that begins Jan. 19. In fact, this year's action goes a step further and makes some of these changes permanent.

The extender changes were signed into law Dec. 18. They're among several updates to personal-finance issues that gained prominence this year.

Tax rules extended

Some of the expired tax rules were revived permanently, while others got a new lease on life for two years. One permanent change  allows teachers to take an "above the line," or nonitemized, deduction for unreimbursed classroom expenses, with the $250 yearly maximum indexed to inflation starting in 2016.

Another gives individual taxpayers who itemize the option of deducting state and local sales taxes instead of state and local income taxes. While this provision is especially important for people living in  Florida, Texas and other states that lack a state income tax, it also can be used in other states for people making large purchases in a year.

"Some taxpayers who make a big-ticket purchase, such as a motor vehicle, before year-end could benefit," said tax researcher Wolters Kluwer.

Another rule that was permanently extended could help affluent seniors and the charities they favor. It allows people 70 1/2 and older to withdraw up to $100,000 a year from IRAs or individual retirement accounts on a tax-free basis provided they transfer the money to a charity. Otherwise, they would need to take a required minimum distribution, declare it as taxable income, then make charitable donations separately.

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People still suffering from the housing downturn might appreciate a two-year extension on mortgage debt canceled by a lender.

"Without an extension, debt that is forgiven through a foreclosure, short sale or loan modification could be treated as taxable income," said Wolters Kluwer.

This rule allows homeowners to avoid taxes on up to $2 million in canceled debt on a principal residence in 2015 and 2016.

In addition, homeowners who pay premiums on mortgage insurance will be able to deduct these costs for 2015 and 2016, thanks to another extension.

Students pursuing post-secondary education can take above-the-line deductions on tuition and fees for two more years.

EMV-card worries surface

More holders of credit and debit cards have been receiving cards with EMV chips designed to reduce fraud. For consumers, the switch means the magnetic stripes on cards no longer are swiped but rather are dipped or inserted into payment terminals and left there for a few seconds while a transaction gets processed. Are these new cards safe?

A few readers have questioned whether they should buy special wallets or sleeves to protect cards from data-reading skimming devices. One company selling card sleeves argues that such protection is needed because crooks wandering about nearby, and equipped with special apps, could lift information from cards in your wallet or purse and use it to make fraudulent purchases.

But as the company noted in a video, the sleeves protect only those cards containing RFID, or radio frequency identification, chips, which are different from the new EMV chips.

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A criminal attempting to lift information from an EMV card would need to hold the device extremely close to a consumer's card or wallet, most likely touching it, said Doug Johnson, senior vice president for payments and cybersecurity policy at the American Bankers Association. Even if this were successful, which Johnson said was highly unlikely, other safeguards are in place.

"The card networks and banks monitor accounts for unusual transactions or transactions that are known to be from illicit vendors," he said. Banks also share information on fraudulent activities and, at any rate, reimburse consumers for unauthorized transactions, Johnson said.

CardRatings.com called the need for sleeves an urban legend. Even if a thief managed to nab your card's contents, "He or she would only have access to its raw codes, not your actual account details," the company said. "Trying to use a copied code would result in a declined transaction and a fraud investigation from your card issuer."

British scientists said they succeeded in compromising EMV-chip transactions, which is what generated some of the concern. Their report highlights the reality that no technology is entirely secure, although it doesn't mean EMV cards are broadly vulnerable.

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"Even with these successful attacks, EMV fraud is nowhere near as rampant as magnetic-stripe fraud," said researcher NextAdvisor, adding that when European banks adopted the cards, fraud dropped sharply.

According to NextAdvisor, consumers should be more concerned with other fraud risks that they can control. For example, it said some cardholders have been voluntarily revealing personal information over the phone or in email messages to crooks posing as bank representatives preparing for the rollout of EMV cards.

Social Security options curtailed

The headline news coming out of Social Security was the announcement in October that there would be no cost-of-living increase for 2016. But there were other changes too, including the effective end to the "file and suspend" option to claim benefits for a married couple.

For couples, this provision essentially has allowed the spouse with a lower earnings record and thus smaller retirement benefit to claim a larger check than otherwise would be the case. The strategy involves having the higher-earning spouse file for his or her own benefits upon reaching full retirement age (generally 66 or 67), then suspending that election before receiving money.

The act of filing by the high-earning spouse allows his or her mate to start receiving spousal benefits earlier and usually for a higher amount than that person could generate from his or her own work record. The reason to suspend reflects the fact that Social Security benefits increase for people who delay claiming them. So for the higher-earning spouse who defers, his or her own benefits would grow 8 percent a year between full retirement age and age 70.

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The strategy doesn't work in all cases but often makes sense for couples with a wide gap in their individual retirement benefits, said Clifton Larson Allen Wealth Advisors.

The rule change means filing and suspending generally won't be worthwhile starting around May.

While some couples won't like it, the rule change could help improve Social Security's finances by eliminating what some view as an expensive loophole. And since it has been one of the more complicated strategies that Social Security recipients have had to figure out, simplicity could be another byproduct.

Reach Wiles at russ.wiles@arizonarepublic.com or 602-444-8616.