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
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
Do not lose your insurance subsidy in 2016 just because you have not filed your 2014 tax return! If you are one of the over 1 million individuals who received an Obamacare health insurance premium subsidy last year and you have yet to file your 2014 tax return, you are risking your opportunity to receive the insurance subsidy in 2016.
Insurance Subsidy and the Preliminary Tax Credit
The insurance subsidy is paid by the government to your insurer to reduce the premiums you owe. It is actually an advance payment of the premium tax credit (PTC) based upon your “estimated” income for the year. Your actual PTC is based on your “actual” income as determined on your tax return. If the advance PTC (subsidy) was less than the actual PTC as determined on your tax return, you are entitled to the difference. On the other hand, if your actual PTC is less than the advance amount, you may owe Uncle Sam some or all of the difference.
Whether you are entitled to additional PTC or owe some back cannot be determined without filing your return. The IRS estimates that 710,000 individuals who received an advance PTC have yet to file a 2014 return or did not file an extension. Add that to the approximately 360,000 taxpayers who received an advance PTC and have filed an extension, and there are over 1 million individuals who need to reconcile their 2014 PTC who have not yet filed.
The Marketplace will determine eligibility for advance PTC for the 2016 coverage year during the fall of 2015. If you have not filed your 2014 return yet, you can substantially increase your chances of avoiding a gap in receiving this help if you file your 2014 tax return as soon as possible. This is true even if you have an extension until October 15th.
Obamacare Forms are not Easy
Navigating the complicated Obamacare forms developed by the IRS is difficult for many taxpayers. Most taxpayers seek professional assistance, and they should because accuracy is key. The IRS is currently sending letters to individuals who received advance PTC subsidies and have yet to file. The letter encourages taxpayers to file within 30 days of the date of the letter. This is to avoid a gap in receiving advance payments of the PTC in 2016.
It is Never a Good Ideal Not to File
Always file your returns, even if you owe and cannot pay. The IRS just gets more aggressive as time goes on. So whether you:
- Do not feel you can do your own return
- Are afraid you may owe some of the PTC back, or
- Think you may be subject to penalties for failing to have health insurance coverage
We encourage you to give Alex Franch, BS EA a call at 781-849-7200. There are penalty exceptions for being uninsured. If you owe a Premium Tax Credit repayment there is a possibility it can be reduced, and it may all work out in the end. Procrastinating is not going to change the outcome, but it could put your 2016 advance Premium Tax Credit at risk. Who knows, you may even be entitled to more PTC and a refund.
You can read more about the Premium Tax Credit here.
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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
Well, 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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