Previous work on using BiLSTM models for PoS tagging has primarily focused on small tagsets. We evaluate BiLSTM models for tagging Icelandic, a morphologically rich language, using a relatively large tagset. Our baseline BiLSTM model achieves higher accuracy than any other previously published tagger, when not taking advantage of a morphological lexicon. When we extend the model by incorporating such data, we outperform the earlier state-of-the-art results by a significant margin. We also report on work in progress that attempts to address the problem of data sparsity inherent to morphologically detailed, fine-grained tagsets. We experiment with training a separate model on only the lexical category and using the coarse-grained output tag as an input into to the main model. This method further increases the accuracy and reduces the tagging errors by 21.3% compared to previous state-of-the-art results. Finally, we train and test our tagger on a new gold standard for Icelandic.