Affordable Care Act for Taxpayers
Obamacare tax credits and penalties coming…
The deadline has passed for individuals and families to obtain required health care coverage to avoid being penalized. Income tax penalties for not having required coverage can be substantial.
As your tax preparers, we are not enforcers of the Affordable Care Act; however, we are the ones who will be on the front lines next tax season delivering the bad news to those who failed to obtain the required health care coverage. These penalties will be added to your tax when you file next tax season.
Any taxpayer who is not covered will pay the greater one of the following two penalties:
- 1% of your yearly household income. (Only the amount of income above the tax filing threshold, $10,150 for an individual, is used to calculate the penalty.) The maximum penalty is the national average monthly premium for a bronze plan based on individual factors.
- $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.
The penalty increases every year. In 2015 it will be 2% of your income or $325 per person. In 2016 it will be 2.5% of your income or $695 per person and then it’s adjusted for inflation in the years to follow.
However, if you missed the deadline, but obtain qualified insurance at some point during the year the penalty will be reduced. The penalty is calculated as 1/12 of the yearly penalty times the number of months the person who was not insured. If you were uninsured for 3 months or less out of the year, then there is no penalty.
Although the open enrollment period for getting insurance through the Marketplace is closed, you can still obtain insurance on your own through your employers or private entities. Employer plans must offer minimum coverage for all full-time employees if the company has at least 50 employees. If that is not the case, you can shop for insurance on your own. You can also wait until the next open enrollment period that begins November 15, 2014 and shop on the Marketplace. However, you would have to pay a penalty for not being insured from March through October, depending on your situation, it may be best to wait.
Special Enrollment Period
Some individuals may qualify for the special enrollment period while the Marketplace is closed. This applies to people who have had a “qualifying life event” like changes to family size or a “complex situation related to applying in the Marketplace.” The Special Enrollment Period is 60 days following a “qualifying life event”. More information regarding the special enrollment period can be found on healthcare.gov.
You might be exempt from the individual responsibility payment for one of the following reasons:
- You were uninsured for less than three months
- The lowest-priced coverage available to you would cost more than 8% of your household income
- You don’t have to file a tax return because your income is too low.
- You’re a member of a federally recognized tribe or eligible for services through an Indian Health Services provider
- You’re a member of a recognized health care sharing ministry
- You’re a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare
- You’re incarcerated, and not awaiting the disposition of charges against you
- You’re not lawfully present in the U.S.
There are also several hardship exemptions for people in situations where they are unable to purchase health insurance. For example if a person was homeless, recently experienced domestic abuse, and a number of other reasons. To obtain an exemption, an application for exemption should be completed on healthcare.gov.
Premium Tax Credit
If you have obtained healthcare coverage through the Marketplace you may be eligible for a Premium Tax Credit. This tax credit is to make purchasing health insurance more affordable for people with moderate incomes. According to irs.gov, you are eligible if you:
- buy health insurance through the Marketplace
- are ineligible for coverage through an employer or government plan
- are within certain income limits
- do not file a Married Filing Separately tax return (unless you meet certain IRS criteria that allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year); and
- cannot be claimed as a dependent by another person.
If you qualify you can choose to get the credit now and have it sent directly to your insurance company or claim the full amount when you file your 2014 or 2015 tax return.
Tax preparers will be in a position to help taxpayers make decisions, but there are still questions to be answered by the IRS to enable them to do so. This summer the IRS is expected to provide tax preparers with information on procedures and forms needed to help taxpayers. Meanwhile information can be found at the following links.
- Affordable Care Act Tax Provisions
- Form W-2 Reporting of Employer-Sponsored Health Coverage
- The Affordable Care Act: What You Should Know as a Taxpayer
- Kaiser Foundation Subsidy Calculator
- Patient Protection and Affordable Care Act; Exchange Functions: Eligibility for Exemptions; Miscellaneous Minimum Essential Coverage Provisions
Have questions or would you like a tax planning session? Give your local Peoples Tax Professional. We are happy to help! Call (804) 204-1040 or email us.
Social Security Field Office Changes
Technology offers more secure options…
To meet increasing service demands despite shrinking budgets, the Social Security Administration (SSA) has invested in technological innovations that offer more convenient, cost-effective and secure options for the public.
Beginning August 2014, the SSA will no longer issue social security number printouts at field offices. Individuals who can’t find their card, but need proof of their social security, will need to apply for a replacement card.
Beginning October 2014, SSA field offices will no longer provide benefit verification letters except in emergency situations. Benefit verifications are available online.
Divorce, Dependents and Decrees
Only one parent may claim a child in a divorce situation…
In general, if you want to claim your child as a dependent, you must be the custodial parent. A custodial parent is the parent with whom the child lived with for the greater number of nights during the year. If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income, if the parents can’t agree to who claims the child.
If you are the noncustodial parent, the custodial parent must sign a written declaration that he or she will not claim the child as a dependent; you must attach this written declaration to your tax return. Without the proper declaration, the IRS will deny your dependency exemption. To release the dependency exemption, the custodial parent may use either Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a similar statement containing the same information as the form.
If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent can attach certain pages from the divorce decree or agreement instead of Form 8332m provided that these pages are substantially similar to Form 8332. The decree or agreement must state all three of the following:
- The noncustodial parent can claim the child as a dependent without regard to any condition (such as payment of support.)
- The other parent will not claim the child as a dependent.
- The years for which the claim is released.
The noncustodial parent must attach all of the following pages from the decree or agreement.
- Cover page (include the other parent’s SSN on that page.)
- The pages that include all of the information identified in 1-3 above.
- Signature page with the other parent’s signature and date of agreement.
Have questions? Give your local Peoples Tax Professional. We are happy to help! Call (804) 204-1040 or email us.
Small Business Corner – ACA Reminders
Reimbursement of individual policies…A reminder for group health plans
Do you reimburse employees for individual policies? If you do, then you may be in violation of recently issued IRS guidance. Up until now, it’s been unclear whether such a practice is in compliance with the Affordable Care Act (ACA). The IRS and Department of Labor (DOL) interpret that a business engaging in this practice is actually creating its own group health plan. A group health plan must not provide an annual limitation on benefits. The amount paid for insurance is deemed to be the annual limitation; this it would fail the requirements.
Although such an arrangement is still considered tax-free, it’s subject to a penalty because it fails to meet certain group health plan requirements. This penalty imposes an amount of $100 per day, per participant.
Notice of coverage to newly hired employees…ACA reminder for employee orientations
The Affordable Care Act (ACA) requires employers to provide all new hires with a written notice about ACA’s Health Insurance Marketplace. This requirement is found in Section 18B of the Fair Labor Standards ACT (FLSA). ACA’s exchange notice requirement applies to employers that are subject to the FLSA. Employers must provide the exchange notice to each employee, regardless of plan enrollment status or part-time or full-time status. Employers are not required to provide a separate notice to dependents or other individuals who are or may become eligible for coverage under the plan but who are not employees. Employees hired after October 1, 2014, must be provided this notice within 14 days of their start date.
The exchange notice should:
- Inform employees about the existence of the exchange and describe the services provided and the manner in which the employee may contact the exchange to request assistance.
- Explain how employees may be eligible for a premium tax credit or a cost-sharing reduction if the employer’s plan does not meet certain requirements.
- Inform employees that if they purchase coverage through the exchange, they may lose any employer-provided coverage, and that all or a portion of this employer contribution may be excludable for federal income tax purposes.
- Include contact information for the exchange and an explanation of appeal rights.
The Department of Labor has provided two sample exchange notices, one for employers who offer a health plan to some or all employees and one for employers who do not offer a health plan. Employers may use one of these models, as applicable, or a modified version, provided the notice meets the content requirements described above.
Seasonal worker exception in ACA…ACA reminder for future planning
The employer mandate, a portion of the Affordable Care Act (ACA) that penalizes employers for not offering health insurance to full-time employees, has numerous exceptions to ease the burden on employers. One of these exceptions is known as the seasonal worker exception. This exception provides relief for employers who employ 50 full-time employees or more in the preceding year, but part of the reason for breaking the 50-employees threshold is due to seasonal employment. A seasonal worker is defined by the Department of Labor as:
“Labor is performed on a seasonal basis where, ordinarily, the employment pertains to or is of the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year.”
This definition is ambiguous and until the IRS releases further regulations, the employer must use good faith to determine whether a worker is seasonal. The regulations state that if the employer breaks the 50 full-time employee threshold for four calendar months or less due to seasonal workers, the employer is not an applicable large employer as defined by the employer mandate and will not owe penalties. These months do not need to be consecutive.
Although the employer mandate has been pushed back to January 1, 2015, keep this in mind for future planning if your business is close to having 50 full-time employees.