Category Archives: Affordable Care Act

Do I Have to File a Tax Return?

When must I file a tax return by?

Do I have to file a tax return? This is a question many taxpayers ask during this time of year – tax time. The question is far more obsure than people believe. To fully understand, we need to consider that there are times when individuals are REQUIRED to file a tax return, and then there are times when it is to individuals’ BENEFIT to file a return (even if they are not “required” to file). Continue reading

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Gambling With Healthcare Premiums?

Everyone likes to gamble, play the lottery or Bingo every once in a while. Even a recreational gambler, will come across that quirk in the tax law. What quirk you wonder? That glitch that can actually cause you to pay more for your health insurance if you have gambling winnings. Yes, even if the overall result from gambling for the year is actually a loss. How on earth can this be, you wonder?  Continue reading

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Seniors With Medical Deductions Beware, Affordable Care Act Will Trump Them!

Seniors With Medical Deductions

One example of itemizing deductions includes the cost of medical and dental expenses. For seniors with medical deductions, these include health insurance premiums. In the past, the medical expense deduction had a limit to the amount that exceeds 7.5% of a taxpayer’s adjusted gross income (AGI). I know this is not the most exciting subject; yet, is important that you pay attention to this change. Continue reading

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2015 Tax Changes for Massachusetts

Here are four 2015 tax changes. Have your filed your income tax return yet in Massachusetts?

2016_04_13 2015 Tax Changes graphicIf not, you may want to get your tax information together today before your run the risk of being late. If you can’t get your information together, at the very least, consider filing an extension. The Massachusetts tax filing extension allows for an automatic six months. Note this is also the case for the IRS. Before you do that, take a few minutes to read about these income tax changes that took place on or before January 1, 2015 for the State of Massachusetts:

Filing Due Date for 2015 Income Tax Returns

If you are not aware, you should be that the filing of tax returns that include Forms 1, 1NR/PY and extensions are due on or before April 19, 2016. Please make a note of it. That is one week away!

Tax Rates

Personal income tax rates are applied against different classes of Massachusetts taxable income. The tax rate on most classes of income is scheduled to decrease in years where the state achieves revenue growth benchmarks set forth by the formula in M.G.L. Chapter 62, Section 4(b).

As of January 1, 2015, the 5.2% tax rate on most taxable income has been reduced to 5.15%. If you sell or exchange capital assets, let it be known that the short-term gains remains at 12%. Also, long-term gains from the sale or exchange of collectibles (after a 50% deduction) conitnues to be at 12%.

Gambling Loss Deduction

Did you take a gamble this year and lose? For the Massachusetts taxpayer, you should note that the new gambling loss deduction is the only deduction for gambling losses permitted. Massachusetts does not take up with the federal deduction under IRC § 165(d) for gambling losses.

A deduction  from Part B income for gambling losses experienced at certain Massachusetts licensed (under General Laws chapter 23K) gaming establishments, this includes racing meeting licensee or simulcasting licensee establishments. However, this is only limited to winnings from such Massachusetts establishments. This includes gross income for the calendar year and the deduction is claimed on Schedule Y.

Health Insurance, Penalty for Failure to Purchase – Tax Year 2015

Individuals who can afford health insurance in accordance with the law but do not act on it are subject to penalties for each month of non-compliance in the tax year. The exception is the provision for no penalty in the case of a gap in coverage of 63 consecutive days or less. The penalty will not be more than 50% of the minimum monthly insurance premium the individual would have been eligible for had they participated in the Connector, and will be enforced through the individual’s personal income tax return upon filing.

The Massachusetts Health Care Reform Act insists that an adult 18 and over who has access to affordable health insurance to purchase it. In 2015, individuals had to be enrolled in health insurance policies that meet minimum approved coverage standards according to the guidelines approved by the Commonwealth Health Insurance Connector Authority (the Health Connector).

These penalties apply only to adults who are considered able to afford health insurance according to Massachusetts guidelines. Annually, the Health Connector sets up individual criteria that decides if individuals, married couples and families can afford health insurance This is according to their incomes and affordable health insurance premiums. Those who are not deemed able to afford health insurance according to the Massachusetts benchmarks will not be penalized. An appeal process is available to file with the Connector stating any hardship that may inhibit them from buying health insurance. If that is the case, they may have to pay a tax penalty).

Real Estate Tax Credit for Persons Age 65 and Older (Circuit Breaker)

Certain taxpayers age 65 or older may be eligible to claim a refundable credit on their state income taxes for the real estate taxes or rent paid during the tax year on the residential property they own or rent in Massachusetts that is used as their principal residence. If the credit due the taxpayer exceeds the amount of the total income tax payable for the year by the taxpayer, the excess amount of the credit will be refunded to the taxpayer without interest. For tax year 2015, the maximum credit allowed for both renters and homeowners is $1,070.
To be eligible for the credit for the 2015 tax year: the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2015 tax year; the taxpayer must own or rent residential property in Massachusetts and occupy the property as his or her principal residence; the taxpayer’s “total income” cannot exceed $57,000 for a single filer who is not the head of a household, $71,000 for a head of household, or $85,000 for taxpayers filing jointly; and for homeowners, the assessed valuation as of January 1, 2015, before residential exemptions but after abatements, of the homeowner’s personal residence cannot exceed  $693,000.

Conclusion

Take these 2015 tax changes seriously, the State does. If your returns have not yet been completed, please all Alex Franch, BS EA at 781.849.7200 right away so that he can schedule an appointment and/or file an extension if necessary. You can also schedule an appointment at one of Worthtax’s locations in Quincy, Weymouth and Dedham.

Sources and Resources

Funny Money: Four Odd Types of Taxable Income
Itemized Deductions: Should I Itemize My Tax Deductions
Employer Relief: Affordable Care Act
2014 Income Tax Impact of the Affordable Care Act (ACA) in a NutshellHealth Insurance: Ways to Deduct
Health Insurance Plans: Beware of Penalties
Tax Changes for 2015 – Commonwealth of Massachusetts

 

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Health Insurance: Ways to Deduct

health Insurance, Affordable Care ActHealth insurance premiums, especially in the light of the Affordable Care Act have risen dramatically. It is one of the largest expenses that most individuals pay. The cost of health insurance is allowed as part of an individual’s medical deductions when itemizing deductions. However, only the amount of total medical expenses that exceed 10% of the taxpayer’s adjusted gross income (AGI) is deductible. The 10% limitation is reduced to 7.5% through 2016 where a taxpayer or spouse (if any) is age 65 or over as of the end of the year. Prior to the increased limitation imposed by the Affordable Care Act, the limitation was 7.5% for everyone.

This article has two purposes:

  1. To remind you what insurance can be included as a medical deduction
  2. To inform you of an alternate means of deducting health insurance for certain self-employed individuals. A means that avoids the adjusted gross income limitation and allows for deduction without itemizing.

What is Deductible Health Insurance?

Let’s start by looking at what is treated as deductible health insurance. It includes the premiums you pay for coverage for yourself, your dependents, and your spouse, if applicable, for the following types of plans:

  • Health Care and Hospitalization Insurance
  • Long-Term Care Insurance (but limited based upon age)
  • Medicare-B
  • Medicare-C (aka Medicare Advantage Plans)
  • Medicare-D
  • Dental Insurance
  • Vision Insurance
  • Premiums Paid through a Government Marketplace net of the Premium Tax Credit

However, premiums paid on your or your family’s behalf by your employer are not deductible. This is because their cost is not included in your wage income. Or, if you pay premiums for coverage under your employer’s insurance plan through a “cafeteria” plan, those premiums are not deductible either because they are paid with pre-tax dollars.

For the Self-Employed, in Accounting Terms:

If you are a self-employed individual, you can deduct 100% of the premiums without itemizing your deductions, excluding an AGI reduction. This is an above-the-line deduction. It is limited to your net profits from self-employment. If you are a partner who performs services in the capacity of a partner and the partnership pays health insurance premiums on your behalf, those premiums are treated as guaranteed payments. Meaning they are deductible by the partnership and are included in your gross income. In turn, you may deduct the cost of the premiums as an above-the-line deduction under the rules discussed in this article.

Here is when no above-the-line deduction is permitted. This is when the self-employed individual is eligible to participate in an employer subsidized health plan of the taxpayer, the taxpayer’s spouse, any dependent, or any child of the taxpayer who has not reached age 27 as of the end of the tax year.

Long-Term Care Insurance

This rule is applied separately to plans that provide coverage for long-term care services. Therefore, an individual eligible for employer-subsidized health insurance may still be able to deduct long-term care insurance premiums. This is as long as the person is not eligible for employer-subsidized long-term care insurance. In addition, to be treated as subsidized, 50% or more of the premium must be paid by the employer.

This above-the-line deduction is also available to more-than-2% S corporation shareholders. For purposes of the income limitation, the shareholder’s wages from the S corporation are treated as his or her earned income.

Health Insurance Tax Questions?

If you have any questions related to deducting health insurance premiums, either as an itemized deduction or an above-the-line deduction for self-employed individuals, call Alex Franch at 781.849.7200. Worthtax has a sign-on bonus of our own. In addition to our guaranteed pricing, we are giving $50 American Express gift cards to any new clients who have their taxes completed and filed by WorthTax. Worthtax provides ultra-convenient service and triple check accuracy. We have locations in Quincy, Weymouth and Dedham.

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The Future of Obamacare

The future of Obamacare is always in question. So I am going out on a limb on this one. Usually I play it safe as a Monday morning quarterback when it comes to our tax updates but I am going deep on this one.  What might we expect this upcoming year with the implementation of Obamacare.

Future of Obamacare, ACA, Affordable Care Act, HPDP,

More Reporting is Predicted in the Future of Obamacare!

The implementation of the future of Obamacare will include additional reporting requirements.  Here is my big prediction; we might see an increase in the number of High Deductible Health Plans (HDHP); a bold prediction, I know. According to the previous link, for calendar year 2016, the IRS has raised the annual limitation on deductions for an individual with family coverage to $6,750.

If your employer (and therefore you) move to High Deductible Health Plans (HDHP) you get to fill out one more tax form with your tax return. This is regardless whether you take money out of it or not. How do you like those apples? Let me introduce you to Form 8889.  You get to compute how much you are eligible to contribute. You also get to report how much was withdrawn for medical expenses.  If you switched coverage part way through the year, all the HDHP limits are prorated. Okay, now don’t get too excited.

What Else Does the Future of Obamacare Hold?

In addition to my bold prediction on the future of Obamacare, we can expect to receive Form 1095-A/B/C as proof of health insurance coverage, or for purposes of computing any Premium Tax Credit on Form 8962, or a shared responsibility payment on Form 8965. Form 1095 was not fully available last year but most people can expect to receive one each year going forward.  On the plus side, we in Massachusetts have had our 1099-HC in place for a long time now so we have become accustomed to the Mass version. This link will answer any questions you may have.

So there you have it, a short list of my predictions. Not that they will prove me to be anyone great, but I do want you to know that if you have any questions, you can call me, Alex Franch, BS EA , 781-849-7200, at Worthtax located in Quincy, Dedham and South Weymouth.

Learn more in our Frequently Asked Questions section.

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Health Reimbursement Plans: Beware of Penalties

2015_08_20 Health Reimbursement Plans2m Health Reimbursement Plans, Healthcare, Health, Reimbursement PlansHealth reimbursement plans and rules have been very interesting these days. They can save you a lot of money, if used appropriately.

Beginning in 2015, large employers defined as those with 100 or more full-time employees must begin offering health insurance coverage to their employees. Then, in 2016, employers with 50 or more full-time employees must do the same or face penalties. These are called the “large employer health coverage excise tax.”

Employers with fewer than 50 full-time employees are never required to offer their employees an insurance plan. However, qualified small employers who do provide coverage may qualify for the small business health insurance credit.

In the past, many smaller employers have simply reimbursed their employees for the cost of insurance. They found it less expensive. And, they had fewer administrative costs than having a group insurance plan. However, under the Affordable Care Act (ACA, or Obamacare for short), a group health plan that reimburses employees for the employees’ substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. Most commentators believe an employer payment plan will fail to comply with the ACA annual dollar limit prohibition. This is because an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement. Also, an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement. Thus, reimbursement plans may be subject to a very draconian penalty.

Small Business Employers, Did You Get the Notice?

Back in February, the IRS issued Notice 2015-17. This provides small employers limited relief from the stiff $100 per day, per participant, penalties under IRC §4980D for health insurance reimbursement plans that had been addressed in Notice 2013-54. In particular, that notice provided:

    • Transitional relief for employers that do not meet the definition of large employers (i.e., employers with 50 or more employees). This relief is granted for all of 2014 and for January 1 through June 30, 2015; and
  • Relief for S corporations that pay for or reimburse premiums for individual health insurance coverage for 2% shareholders, as previously addressed in Notice 2008-1. The relief period is indefinite, and the IRS states that taxpayers may continue to rely on Notice 2008-1 “unless and until additional guidance” is provided.

The Small Employer Health Reimbursement Relief is Expired

2015_08_20 Health Reimbursement Plans QuoteWell, June 30, 2015 has come and gone. So has the small employer relief. Therefore, employers who still reimburse employees for their medical expenses are in danger of being subject to the $100 per day ($36,500 a year) per employee penalty. Compared to the annual $2,000 penalty that large employers face for not providing insurance to their full-time employees, the penalties on small employers are substantial enough to bankrupt them. What does this mean? The large employer who fails to provide any insurance pays a penalty of only $2,000 per year per employee while the employer who helps employees by reimbursing them for the cost of insurance gets hit with an up to $36,500-per-employee penalty.

This is true even if the employer is a small employer (50 or fewer full-time employees) who is under no legal obligation to provide health insurance plans for its employees. They just want to offer reimbursements simply to help the employees. Does this seem fair? We will let you form your own opinion. You are welcome to leave a comment below to go over to our Facebook or Google+ pages to express your thoughts.

Will Congress step in to alleviate the problem? Maybe yes and maybe no. Employers must decide if it is worth the risk to depend on Congress to act.

There is one firm, Zane Benefits, which claims to have solved the problem with a reimbursement plan that complies with the code. Of course, there are others who argue that it does not.

Bottom Line: Understand your risks if your business has a medical reimbursement plans and consider other options.

If you have questions related to your business and employees or about the tax consequences or benefits regarding health reimbursement plans, please give Alex a call at 781-848-7200. He can help you sort through the tax treatments for you or your business large or small.

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2014 Income Tax Impact of the Affordable Care Act (ACA) in a Nutshell

By: Cindy Toran, MBA, BA

Affordable Care Act ACAThe Affordable Care Act (ACA), also known as Obamacare, will add a new level of complexity in preparing 2014 U.S. Income Tax Returns. Massachusetts taxpayers are familiar with state reporting requirements to verify coverage on their MA individual tax returns, however, the ACA criteria includes anyone:

  • Covered through the Marketplace, or
  • Claiming an exemption from health insurance coverage, or
  • Who had no coverage for any month out of the year.

Are new tax forms required with the Affordable Care Act in effect?

Yes. The following new tax forms may be required:

  • Form 1095-A, Health Insurance Marketplace Statement (issued by Marketplace insurer by 1/31/15)
  • Form 8965, Health Coverage Exemptions (file with 2014 tax return)
  • Form 8962, Premium Tax Credit (file with 2014 tax return)

Simplest Case with the Affordable Care Act:

Taxpayers whose entire household had qualifying health coverage for each month of their tax year will simply check a box on their federal income tax return. No further action is required.

Affordable Care Act Health Coverage Exemption(s):

If anyone in the taxpayer’s household did not have coverage for any month of the year and claims an exemption, Form 8965 will need to be attached indicating the individual’s name, Social Security number, and exemption type or reason. Exemptions include:

  • Cost of coverage exceeding 8% of household income*
    • A coverage gap of less than 3 consecutive months
    • Household income below threshold for filing a tax return
    • Coverage gap at the beginning of 2014 when purchased coverage through the Marketplace
  • Religious exemption*
  • American Indian or Alaska Native
  • Ineligible for Medicaid because your state does not participate in expansion under the Affordable Care Act*
  • Hardship, including foreclosure, unpaid medical bills, death of a close family member, eviction, domestic violence, abandonment*
  • Incarceration
* Exemption Certificate Number required from Marketplace

Shared Responsibility Payment (SRP)

If anyone in the taxpayer’s household had no coverage for any month and no exemption, the Shared Responsibility Payment (SRP) is calculated and paid as follows, allocated monthly. Form 8965 includes a worksheet to assist in the calculations.

The Shared Responsibility Payment for 2014 is the greater of:

  • 1% of the household income above the filing threshold based on filing status, or
  • $95 per adult and $47.50 per child under age 18, with a maximum of $285.

The Good News

Massachusetts residents may be familiar with the state-level penalty for not having health insurance. The good news is, if you have to pay the federal penalty (Shared Responsibility Payment), you may not have to pay the full Massachusetts penalty.

According to the Massachusetts Department of Revenue, if the federal penalty is greater than the state penalty, then no state penalty is due. If the state penalty is greater, then the amount due to the state is the difference between the two.

Premium Tax Credit and Advanced Payments

If anyone in the taxpayer’s family enrolled in a health plan through the Marketplace and received advance credit payments, Form 8962 must be completed to reconcile the advance credit payments (which was based on an estimate) with the actual premium tax credit. If no advance credit payment was received, Form 8962 will calculate the amount of credit due to you, which will be claimed as a tax credit on your tax return. Generally you will be eligible for a premium tax credit for 2014 if your household income is 100% to 400% of the federal poverty line in the 48 contiguous states:

affordable care act aca healthcare

Summing up the Affordable Care Act

Your 2014 tax reporting due to the ACA may be quite simple, or it may be very complex. This is just a synopsis. For more information, visit the Affordable Care Act Information Center on our website or feel free to give us a call.

What about your thoughts?

Do you have any thoughts, questions or concerns regarding the Affordable Care Act? Please feel free to leave your comments below or post to on our FacebookGoogle+ or LinkedIn pages.

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Tax Season is Here!

Time flies – before it slips away, call Alex Franch, EA at 781-849-7200 for your appointment and learn about our client discounts here.

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