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William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘shared responsibility payment’

Do you Owe a Health Care Coverage Penalty for 2014?

Posted by William Byrnes on June 20, 2014


Deadline to Enroll has Passed

The deadline to enroll in minimum essential health insurance passed on March 30, 2014.   According to estimates by the Federal Department of Health and Human Services (HHS), it met its goal of at least 7 million persons enrolling for health care via the health insurance market places established by the federal government on behalf of various states. Some states, such as California, established their own insurance marketplaces, and thus it is likely that the 7 million figure has indeed been achieved, if not surpassed.

Did Enough Healthy People Enroll to Pay for The System?

The primary question for the federal government that remains is whether the balance of persons enrolling that are “healthy” individuals who must simply pay the annual premium in 2014 but will not actually take dollars from the medical coverage in 2014, will outweigh the payouts to individuals that will take more from health insurance than they pay in.

But What About the Medicaid Expansion?

Moreover, the Affordable Care Act pushed states to expand the definition of when an individual may be covered by the Medicaid, and thus receive medical care substantively paid for by a combination of the federal and state government.  The federal government upfront will provide 90% of a state’s additional medicare cost.  The state must shoulder more of this burden in the future though.

How Will This Be Paid For?

How will the federal government pay for its share of the additional medicare costs and for any additional costs associated with this new federally mandated system?  Some government officials state that Obama Care is already set up to pay for itself because the medical profession, insurance companies, and taxpayers will pick up the additional costs.  Insurance companies will reduce their own administrative costs, the medical profession will offer its services at cheaper prices, and Congress has already raised taxes in the forms of the increased medicare payroll tax and medicare tax on investment income.

The New “Shared Responsibility Payment” Tax, Penalty, Fine

But also, Congress imposed a required payment (some pundits call it a penalty, some call it a tax, others a fine like a parking ticket) on taxpayers who do not obtain and maintain health coverage, that will over time increase.  As the required penalty increases over the coming years, in principle at least, it should be cheaper for a taxpayer to simply buy the lowest cost health insurance than to pay this penalty.  This assumes that the cost of the lowest quality health insurance in these marketplaces does not sky rocket to over come the penalty.

Congress did not call the penalty a “penalty” in the actual law. Instead, Congress used a more ‘voter friendly’ expression “individual shared responsibility payment”.

An Example Decision Maker Deciding What to do in 2014

Other factors will play a role in this decision process, such as a individual’s appetite to take on catastrophic medical risk  (like breaking all their bones in an accident) and weighing the cost of the insurance and the required deductible. If an individual’s annual premium will cost by example approximately $7,200 and the annual deductible is $6,000 (this is an actual example from an insurance policy offered via the 2014 California Marketplace), and the individual thinks that it is extremely unlikely that he or she will spend more than $13,200 in medical costs in 2014, then the individual may opt for the “shared responsibility payment”.

If nothing medically happens during 2014, the taxpayer will only owe the contribution, and thus have saved over $13,000!  However, if something catastrophic happens in 2014 requiring substantial medical expenses over $13,200, the taxpayer will have been better off with the insurance.  Another economic factor in this economic decision making process includes the amount of co-pay required per type of medical procedure.  Another factor in the risk decision making process is the individual’s belief of potentially requiring a certain level of medical expenses, such as perhaps just a stomach virus and the likely out of pocket cost of that care, versus breaking a bone.

How much is the penalty for 2014 if a taxpayer did not have “minimum essential coverage’ by March 30, 2014?

If a taxpayer (or any dependents) do not maintain health care coverage and do not qualify for an exemption, then the taxpayer must make an individual shared responsibility payment with the 2014 tax return.  In general, this health care coverage penalty is either a percentage of the taxpayer’s income or a flat dollar amount, whichever is greater.  High income taxpayers will pay a higher penalty.  A taxpayer will owe 1/12th of this penalty for each month of the taxpayer or taxpayer’s dependents gap in coverage.  The annual payment amount for 2014 is the greater of:

  • one percent (1%) of the household income that is above the tax return threshold for the taxpayer’s filing status, such as Married Filing Jointly or single, or
  • a family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285.

This individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014.  The taxpayer will pay the due amount with the 2014 federal income tax return filed in 2015.  For example, a single adult under age 65 with household income less than $19,650 (but more than $10,150) would pay the $95 flat rate.  However, a single adult under age 65 with household income greater than $19,650 would pay an annual payment based on the one percent rate.  

Why greater than $19,650?  The filing threshold for a single adult in 2014 is 10,150, subtract that from $19,650, leaving a base amount of $9, 500.  Multiply 1% to that base amount and the penalty is $95, the same as the flat rate.

So, from the beginning of this year (January 1, 2014) a taxpayer and the family must either have “qualifying” health insurance coverage throughout the year, qualify for an exemption from coverage, or make the above payment when filing the 2014 federal income tax return in 2015.

What is “Minimum Essential Coverage” Under the Affordable Care Act (“ACA”)?

In Health Care Tax Tip 12, the IRS explained for a taxpayer how to determine if his or her health care coverage qualifies as “minimum essential coverage” to avoid the health care coverage penalty for 2014 that must be paid by April 15, 2015 when filing the tax return.

The Affordable Care Act calls for individuals to have and maintain qualifying health insurance coverage for each month of the year, or have an exemption, or make a shared responsibility payment (pay a ‘penalty’) when filing their federal income tax return next year by April 15, 2015.

Qualifying health insurance coverage, called minimum essential coverage, includes coverage under various, but not all, types of health care coverage plans. The IRS stated that the majority of coverage that people have today counts as minimum essential coverage.

The IRS provided examples of minimum essential coverage:

  • Health insurance coverage provided by an employer,
  • Health insurance purchased through the Health Insurance Marketplace,
  • Coverage provided under a government-sponsored program (including Medicare, Medicaid, and health care programs for veterans), and
  • Health insurance purchased directly from an insurance company.

Minimum essential coverage does not include coverage providing only limited benefits, such as:

  • Coverage consisting solely of excepted benefits, such as:
    • Stand-alone vision and dental insurance
    • Workers’ compensation
    • Accident or disability income insurance
  • Medicaid plans that provide limited coverage such as only family planning services or only treatment of emergency medical conditions.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: , , , | Leave a Comment »

Do I Owe an Obama Care “Individual Shared Responsibility Payment” with my next tax return?

Posted by William Byrnes on April 30, 2014


The IRS, in its Health Care Tax Tip 2014-04, addressed the question of whether a taxpayer owes an Obama Care Tax Penalty (or “Fee” or as it is formally known an “Individual Shared Responsibility Payment”) to be paid with the 2014 tax return filed by April 15, 2015.  What ever it is referred to, being a penalty, a fee, or a payment, it is mandatory and was fairly imposed by Congress, with a supra majority Senate vote.  

So … the question is: Do I owe it?  And if so, how much do I owe? 

The short answer is that for any month in 2014 that a taxpayer or any of a taxpayer’s dependents do n0t maintain health care coverage and do not qualify for an exemption from having health care coverage, then the taxpayer will owe an “individual shared responsibility payment” with your 2014 tax return filed in 2015 (exemption is the same as exception, and in tax it is said that there is always an exception to a rule, and an exception to the exception).  

What is the “less than three-month gap” exemption / exception?

The exception is if a taxpayer went without health care coverage for less than three consecutive months during the year, then the taxpayer may qualify for the short coverage gap exemption and will not have to make a payment for those months. However, if a taxpayer has more than one short coverage gap during a year, the short coverage gap exemption only applies to the first.  So by example, the taxpayer has health care coverage January 1, 2014 until February 28, and May 1 until August 30, and then again from November 15 through December 31, 2014.  The first health care coverage gap that falls within the exception is March 1 until April 30 because it is less than three consecutive months.  The second gap in coverage is also less than three consecutive months, being September 1 through November 15 – but the exception has already been used for the year so it does not fall within it.

How much does a taxpayer owe?

If a taxpayer (or any dependents) do not maintain health care coverage and do not qualify for an exemption, then the taxpayer must make an individual shared responsibility payment with the 2014 tax return.  In general, this health care coverage penalty is either a percentage of the taxpayer’s income or a flat dollar amount, whichever is greater.  High income taxpayers will pay a higher penalty.  A taxpayer will owe 1/12th of this penalty for each month of the taxpayer or taxpayer’s dependents gap in coverage.  The annual payment amount for 2014 is the greater of:

  • one percent (1%) of the household income that is above the tax return threshold for the taxpayer’s filing status, such as Married Filing Jointly or single, or
  • a family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285.

This individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014.  The taxpayer will pay the due amount with the 2014 federal income tax return filed in 2015.  For example, a single adult under age 65 with household income less than $19,650 (but more than $10,150) would pay the $95 flat rate.  However, a single adult under age 65 with household income greater than $19,650 would pay an annual payment based on the one percent rate.  

Why greater than $19,650?  The filing threshold for a single adult in 2014 is 10,150, subtract that from $19,650, leaving a base amount of $9, 500.  Multiply 1% to that base amount and the penalty is $95, the same as the flat rate.

So, from the beginning of this year (January 1, 2014) a taxpayer and the family must either have “qualifying” health insurance coverage throughout the year, qualify for an exemption from coverage, or make the above payment when filing the 2014 federal income tax return in 2015.

What qualifies as “qualifying health insurance coverage”?

Qualifying coverage includes coverage provided by an employer, health insurance purchased in the Health Insurance Marketplace, most government-sponsored coverage, and coverage purchased directly from an insurance company.  However, qualifying coverage does not include coverage that may provide limited benefits, such as coverage only for vision care or dental care, workers’ compensation, or coverage that only covers a specific disease or condition.

What are the exemptions to obtaining or maintaining required health care coverage?

A taxpayer may be exempt from the requirement to maintain qualified coverage if:

  • Have no affordable coverage options because the minimum amount a taxpayer must pay for the annual premiums is more than eight percent (8%) of household income,
  • Have a gap in coverage for less than three consecutive months (see abo0ve), or
  • Qualify for an exemption for one of several other reasons, including having a hardship that prevents the taxpayer from obtaining coverage, or belonging to a group explicitly exempt from the requirement.
  • A special hardship exemption applies to taxpayers who purchase their insurance through the Marketplace during the initial enrollment period for 2014 but due to the enrollment process have a coverage gap at the beginning of 2014.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

 

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

Posted in Taxation | Tagged: , , , , | Leave a Comment »

Today is the deadline to sign up for health care (or face penalties)

Posted by William Byrnes on March 31, 2014


In Health Care Tax Tip 2014-11 the IRS reminds taxpayers that today, March 31, is the deadline to sign up for health care for 2014 – or face penalties.

Below are five tips about the Obama Care (ACA) health care law that the IRS wants taxpayers to consider.

• Currently Insured – No Change: If a taxpayer is already insured, do not need to do anything more than continue that insurance.

• Uninsured – Enroll by Today – March 31: The open enrollment period to purchase health care coverage through the Health Insurance Marketplace for 2014 runs through March 31, 2014. When a taxpayer chooses health insurance through the marketplace, the taxpayer may be able to receive advance payments of the premium tax credit that will immediately help lower the monthly premium.

• Premium Tax Credit To Lower the Monthly Premium: If a taxpayer chooses insurance through the Marketplace, the taxpayer may be eligible to claim the premium tax credit. The taxpayer may elect to have advance payments of the tax credit sent directly to the insurance company during 2014 so that the monthly premium the taxpayer must pay is lower, or the taxpayer can wait to claim the credit when filing the tax return in 2015.  If a taxpayer chooses to have advance payments sent to the insurance company, then the taxpayer must reconcile the payments on the 2014 tax return, which will be filed in 2015.

• Change in Circumstances: If a taxpayer receives advance payments of the premium tax credit to help pay for the insurance coverage, then the taxpayer must report “life changes”, such as income, marital status or family size changes, to the Marketplace. Reporting changes will help to make sure the taxpayer has the right coverage and is getting the proper amount of advance payments of the premium tax credit.

• Individual Shared Responsibility Payment: Starting January 2014, taxpayers and the family must have health care coverage or have an exemption from coverage.  Most people already have qualifying health care coverage.  These individuals will not need to do anything more than maintain that coverage throughout 2014.  If a taxpayer can afford coverage but decides not to buy it and remain uninsured throughout the year, that taxpayer may have to make an “individual shared responsibility payment” (a.k.a. the ACA penalty) when filing a 2014 tax return in 2015.

Posted in Taxation | Tagged: , , , , | Leave a Comment »

 
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