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Obamacare: How the Affordable Care Act Impacts Your Taxes
Obamacare could affect your federal taxes this year and beyond. Beginning this tax season (2014), you may notice some changes on your tax return related to the Affordable Care Act, commonly referred to as just ACA or Obamacare.
In order to ensure that you understand how the ACA works, we have created the following guide in order to inform you about the potential impact to your tax situation this year. In this article, you’ll find specific information around:
(a) How the ACA might affect your taxes,
(b) Which new forms you’ll need to look for, and
(c) What documentation we’ll need from you in order to complete your tax return.
Did you have Minimum Essential Coverage during 2014?
It is important that your tax preparer is informed as to whether you had minimum coverage during the tax year. To avoid the penalty for being uncovered you must have insurance that qualifies as minimum Essential Coverage. Having Minimum Essential Coverage means you’re covered by any of the following types of plans:
- Any Marketplace plan, or any individual insurance plan you already have
- Any Marketplace plan, or any individual insurance plan you already have
- Any employer plan (including COBRA plans, with or without “grandfathered” status)
- Retiree health plans
- Medicare
- Medicaid
- The Children’s Health Insurance Program (CHIP)
- TRICARE (for current service members and military retirees, their families, and survivors)
- Veterans health care programs (including the Veterans Health Care Program, VA Civilian Health and Medical Program (CHAMPVA), and Spina Bifida Health Care Benefits Program)
- Peace Corps Volunteer plans
- Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014
What New Tax Forms Do you Expect?
- Form 1095-C: Your employer may provide a separate Form 1095-C to you and to the IRS, which provides information about your plan and who was covered.
- Form 1095-B: Private insurers and self-funded plans may provide each policyholder and the IRS with information summarizing the coverage provided on Form 1095-B.
Note:
It is important to note, however, that this year is a transition period for Forms 1095-B and 1095-C, so these forms are not a requirement for tax year 2014.
What form do you need to get your taxes done?
- All of the usual documentation you provide every year during taxes.
- Form 1095-C or 1095-B, if you received it from your employer or private insurer.
Did you purchase a health plan through a Health Insurance Marketplace?
It is important to let us know, prior to tax preparation that you purchased your plan through a Health Insurance Marketplace, also known as a Health Exchange.
If you overestimated your 2014 household income when you applied for the tax subsidy, you will receive the remainder of the subsidy in the form of a refundable credit, which will increase the refund amount or decrease the amount owed on your tax return. But if you earn more than you projected, you will have to pay a portion or “vomit” all of the subsidy back, which will decrease the refund amount or increase the amount owed on your tax return.
In addition to a change in income, make sure to report all life changes (i.e. getting married or having a child) through your Marketplace to ensure your subsidy is correct.
New Tax Forms to Expect
- Form 1095-A: If you purchased insurance through the Health Insurance Marketplace you will receive a new form, Form 1095-A, which will show details of your insurance coverage including the effective date, amount of premium and the advance premium tax credit.
- Form 8962: If you are eligible to receive a premium tax credit in 2014, information about your advance premium tax credit will be reported and the actual premium tax credit will be determined on Form 8962.
What I need from you
All of the usual documentation you provide
- Form 1095-A, if you purchased health insurance through the Health Insurance Marketplace
What If I don’t have health insurance?
Under the ACA, individuals who did not have health insurance for more than three months in 2014 must pay a tax penalty. However, according to Congressional Budget Office, an estimated 20 million Americans may qualify to waive that penalty this year. To find out if you qualify for an exemption, visit www.healthcare.gov.
How do I know if I qualify for an exemption?
The Affordable Care Act recognizes there are legitimate reasons people may be exempt from paying a tax penalty for not having health insurance.
Some of the common exemption reasons include:
- Can’t afford health insurance; the lowest-priced coverage available would cost more than 8 percent of their household income
- Had difficulty signing up for health insurance through a state or federal marketplace
- Had medical expenses you couldn’t pay in the last 24 months that resulted in substantial debt
- Had an individual insurance plan cancelled, and believe other marketplace plans are unaffordable
- Received a shut off notice from a utility company
For the full list of exemptions, please check www.healthcare.gov/fees-exemptions/exemptions-from-the-fee/
If you’ve been uninsured for fewer than three consecutive months of the year, you don’t need to apply for an exemption. This will be handled when we file your 2014 taxes. Also, if you are not required to file a tax return because your income is too low, you don’t need to apply for an exemption.
If you believe you qualify for one of the exemptions, please notify us as soon as possible, so we will be able to let you know whether you can claim it on your tax return or apply through the Health Insurance Marketplace along with the required documentation in certain cases. Different exemptions require different forms, so be sure to apply with the correct document. You can find and print all of the forms at healthcare.gov/exemptions.
For those exemptions that should be filed through the Health Insurance Marketplace, the approval process can take a couple of weeks, so don’t wait until we file your taxes to apply for an exemption. Instead, submit your application as soon as possible. That way, it will be documented and processed in time, and we can file your tax return as soon as the IRS begins accepting returns in January.
What I need from you
All of the usual documentation you provide
- If you are getting an exemption through the Health Insurance Marketplace (also called an exchange) and not claiming the exemption directly on the tax return, you will also need to provide the exemption certificate number.
What if I’m not exempt?
If you don’t have health insurance and don’t qualify for an exemption, you will have to pay a penalty when you file for your 2014 tax return. If that’s the case, don’t worry: We will help you calculate the exact amount of your tax penalty and work to identify any qualifying deductions that may help offset this fee.
The tax penalty, also referred to as the “individual shared responsibility payment”, is based on your family size and income. The penalty will be prorated based on the number of months you are uninsured and will increase each year.
For tax year 2014, the annual one-time tax penalty will be $95 per adult, or one percent of your total income, whichever is greater. For uninsured children in your family, the penalty is $47.50 per child, with a family maximum of $285 for the year. The tax penalty is assessed on your 2014 tax return.
Each year following 2014, the penalty increases — in 2015 the penalty is $325 per person, $162.50 per child — or two percent of your income. By 2016, the penalty rises to $695 per adult, $347.50 per child — or 2.5 percent of your household income.
We know that the tax filing process can sometimes be overwhelming and that the Affordable Care Act could potentially further complicate the process. Please know that we are here to help you navigate these changes.
PREMIUM TAX CREDIT (PTC)
- The Premium Tax Credit applies to taxpayers who enrolled in a qualified health plan offered through a Marketplace.
- Tax Payers will receive a Form 1095-A, Health Insurance Marketplace Statement, which must be provided to the tax preparer before being able to file a tax return.
- Information included on Form 1095-A will flow to Form 8962 in order to reconcile the amount of premium tax credit.
- Advance payment of the premium tax credit (APTC) is a payment made for coverage during the year to the insurance provider that pays for part or all of the premiums for the coverage of the taxpayer or an individual in their tax family.
- The taxpayer must file Form 8962 to reconcile any Advance Premium Tax Credit (APTC) against the Premium Tax Credit (PTC) eligible for the tax year. If the APTC is more than the PTC, the taxpayer will have excess APTC and must repay the excess, subject to certain limitations. If PTC is more than the APTC, the taxpayer can reduce their tax payment or increase their refund by the difference.
INDIVIDUAL SHARED RESPONSIBILITY PAYMENT (SRP)
Beginning in 2014, your clients must have health care coverage, have a health coverage exemption, or make a shared responsibility payment with their tax return. (For clients subject to the individual shared responsibility payment, they may be eligible for the exemptions below.)
- Minimum essential coverage is coverage under a government-sponsored program, coverage from an employer, a plan that they purchased in the individual market, or certain other coverage.
- For 2014, the annual shared responsibility payment amount is the greater of: a) 1% of household income above filing threshold, or b) Family’s flat dollar amount, $95 per adult and $47.50 per child, limited to family maximum of $285
Contact FirstrateTaxes.com for any questions you may have.
Health Savings Accounts
What is an HSA?
An HSA or Health Savings Account is a bank account that you open at a financial institution in your name with your money. Like any other account money only comes out and goes in to the account per your instructions. In order to open and contribute to a Health Savings Account you have to meet the following eligibility requirements set by the IRS.
Eligibility to Make Contributions to HSA
In order to be eligible to make contributions to an HSA, an individual must meet the following requirements:
- He or she must be covered under a high deductible health plan (HDHP defined below),
- He or she cannot have any other health coverage except as permitted (see below),
- He or she cannot be claimed as a dependent on another person’s tax return, and
- He or she must be an eligible on the first day of the month to take an HSA deduction for…
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Health Savings Accounts
What is an HSA?
An HSA or Health Savings Account is a bank account that you open at a financial institution in your name with your money. Like any other account money only comes out and goes in to the account per your instructions. In order to open and contribute to a Health Savings Account you have to meet the following eligibility requirements set by the IRS.
Eligibility to Make Contributions to HSA
In order to be eligible to make contributions to an HSA, an individual must meet the following requirements:
- He or she must be covered under a high deductible health plan (HDHP defined below),
- He or she cannot have any other health coverage except as permitted (see below),
- He or she cannot be claimed as a dependent on another person’s tax return, and
- He or she must be an eligible on the first day of the month to take an HSA deduction for that month.
IRS FORM 8889 – Health Savings Account
This worksheet is used to report information and make calculations concerning the taxpayer’s Health Savings Account, including the following:
- Report health savings account (HSA) contributions including those made on the taxpayer’s behalf and employer contributions,
- Calculate the taxpayer’s HSA deduction,
- Report distributions from the taxpayer’s HSA, and
- Calculate the amount of contribution or distributions that is taxable and subject to an additional tax.
HSA’s give you more control over how your healthcare dollars are spent. A higher deductible means that you will be paying for more of your medical expenses out of your own pocket. It also means that you will be paying a lower premium.
What are the Advantages and Disadvantages of an HSA?
Advantages
- Low Premium
- Comprehensive Insurance
- Great Tax Benefits
- Network prices for Medical Care
Disadvantages
- High Deductible means you’ll pay more when the time comes.
What is a Qualified High Deductible Health Plan?
HDHP
This is a health insurance plan that meets the following limits in 2011:
| Self-Only Coverage |
Family Coverage |
|
| Minimum Annual Deductible | $1,200 | $2,400 |
| Maximum Annual Out-Of-Pocket Expenses (Other Than For Premiums) | $5,950 | $11,900 |
Contributions to an HSA
For 2011, the annual contribution and deduction limit is $3,050 if the taxpayer has a high deductible health plan with self-only coverage, or $6,150 if the taxpayer has family coverage. If the taxpayer is age 55 or older at the end of 2011, their additional allowable contribution amount is $1,000. A taxpayer cannot deduct any contributions to an HSA that were made in the same month in which the taxpayer was enrolled in Medicare.
Distributions from an HSA
If distributions from an HSA are used for qualified medical expenses for the account beneficiary, spouse, or dependents, the distributions are excludable from gross income. Any amounts not used for qualified medical expenses are includible in gross income and are subject to an additional 20% tax unless an exception applies.
Qualified Medical Expenses
Qualified medical expenses for HSA purposes are unreimbursed medical expenses that could otherwise be deducted on the Schedule A worksheet with the exception of the list below:
– The taxpayer may not deduct the costs of any non-prescription medicines with the exception of insulin.
– The taxpayer may not treat insurance premiums as qualified medical expenses unless the premiums are for one of the following:
- Long-term care (LTC) insurance,
- Health care continuation coverage, or
- Health care coverage while receiving unemployment compensation under Federal or state law.
- Medicare and other health care coverage if the taxpayer was 65 or older, however, this does not apply to amounts paid for a Medicare supplemental policy.
NOTE: Distributions from an HAS is normally reported on FORM 1099-SA (Distributions from an HAS, Archer MSA, or Medicare Advantage MSA.
Home Office Deduction (Part II)
FORM 8829
Qualifying for a Deduction
Generally, you cannot deduct items such as mortgage interest and real estate taxes as business expenses. However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Even then, your deduction may be limited. Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home.
To qualify to deduct expenses for business use of your home, you must use part of your home:
- Exclusively and regularly as your principal place of business (defined later),
- Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business,
- In the case of a separate structure which is not attached to your home, in connection with your trade or business,
- On a regular basis for certain storage use.
- For rental use (see IRS Publication 527), or
- As a daycare facility
Additional tests for employee use.
If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed earlier plus:
- Your business use must be for the convenience of your employer, and
- You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.
If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.
Exclusive Use
To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.
You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes.
Figuring the Deduction
After you determine that you meet the tests under Qualifying for a Deduction, you can begin to figure how much you can deduct. You will need to figure the percentage of your home used for business and the limit on the deduction.
Rental to employer.
If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home in performing services for your employer.
Business Percentage
To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Use the resulting percentage to figure the business part of the expenses for operating your entire home.
You can use any reasonable method to determine the business percentage. The following are two commonly used methods for figuring the percentage.
- Divide the area (length multiplied by the width) used for business by the total area of your home.
- If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home.
Example 1.
- Your office is 240 square feet (12 feet × 20 feet).
- Your home is 1,200 square feet.
- Your office is 20% (240 ÷ 1,200) of the total area of your home.
- Your business percentage is 20%.
Example 2.
- You use one room in your home for business.
- Your home has 10 rooms, all about equal size.
- Your office is 10% (1 ÷ 10) of the total area of your home.
- Your business percentage is 10%.
Part-Year Use
You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction.
Deduction Limit
If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home.
If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited.
Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following.
- The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). These expenses are discussed in detail under Deducting Expenses , later.
- The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself.
If you are self-employed, do not include in (2) above your deduction for half of your self-employment tax.
Example.
You meet the requirements for deducting expenses for the business use of your home. You use 20% of your home for business. In 2011, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order.
| Gross income from business |
$6,000 |
| Minus: | |
| Deductible mortgage interest and real estate taxes (20%) |
3,000 |
| Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) |
2,000 |
| Deduction limit |
$1,000 |
| Minus other expenses allocable to business use of home: | |
| Maintenance, insurance, and utilities (20%) |
800 |
| Depreciation allowed (20% = $1,600 allowable, but subject to balance of deduction limit) |
200 |
| Other expenses up to the deduction limit |
$1,000 |
| Depreciation carryover to 2012 ($1,600 − $200) (subject to deduction limit in 2012) |
$1,400 |
You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). You also can deduct all of your business expenses not related to the use of your home ($2,000). Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. You can carry over the $1,400 balance and add it to your depreciation for 2012, subject to your deduction limit in 2012.
Deducting Expenses
If you qualify to deduct expenses for the business use of your home, you must divide the expenses of operating your home between personal and business use. This section discusses the types of expenses you may have and gives examples and brief explanations of these expenses.
Examples of Expenses
- Real estate taxes.
- Qualified mortgage insurance premiums.
- Deductible mortgage interest.
- Casualty losses.
- Depreciation (covered under Depreciating Your Home , later).
- Insurance.
- Rent paid for the use of property you do not own but use in your trade or business.
- Repairs.
- Security system.
- Utilities and services.
NOTE:
Insurance
You can deduct the cost of insurance that covers the business part of your home. However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. You can deduct the business percentage of the part that applies to the following year in that year.
Rent
If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. To figure your deduction, multiply your rent payments by the percentage of your home used for business.
Security System
If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home.
Utilities and Services
Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. However, if you use part of your home for business, you can deduct the business part of these expenses. Generally, the business percentage for utilities is the same as the percentage of your home used for business.
Telephone.
The basic local telephone service charge, including taxes, for the first telephone line into your home (i.e., landline) is a nondeductible personal expense. However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Do not include these expenses as a cost of using your home for business. Deduct these charges separately on the appropriate form or schedule. For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home).
Source: http://www.irs.gov/publications/p587/ar02.html
What Is the Difference Between a RRB-1099-R and a RRB-1099?
Certain forms such as the RRB-1099 and RRB-1099-R aren’t common but are still important for those receiving taxable funds from railroad retirement benefits.
1. RRB-1099
The RRB-1099 relates to railroad retirement benefits, which is what the “RRB” stands for. This IRS form is for the social security portion of any railroad retirement benefits received, and taxes this segment of your railroad benefits as though they were social security benefits. According to TurboTax, a portion of railroad retirement benefits are “equal to the Social Security benefits that a railroad employee or beneficiary would have been entitled to receive if that person had been covered under the Social Security system rather than the railroad retirement system.”
2. RRB-1099-R
The RRB-1099-R is similar to the RRB-1099, except the RRB-1099-R deals with the pension portion of railroad retirement benefits, according to TurboTax. Form RRB-1099-R, which reports the “total payments, repayments and related federal income tax withheld from the non-social security equivalent benefit” section of received railroad benefits, can be used by both U.S. citizens and “nonresident alien beneficiaries,” states the United States Railroad Retirement Board.
What is the Difference?
The main difference between RRB-1099 and RRB-1099-R is what portions of taxable income they pertain to. According to the IRS, the Railroad Retirement Act breaks payments into two categories: social security and pension. These two categories require two separate IRS forms. One form, RRB-1099, deals with the taxable social security portion of your railroad benefits, while the other form, RRB-1099-R, deals with the taxable pension portion of your benefits.
Source: http://www.ehow.com/info_10060478_difference-between-rrb1099r-rrb1099.html#ixzz1foHTk06T
First Rate Tax Preparation Services ®
At First Rate® Tax Services, we:
1. Respect:
We respect all our clients and strive to consistently do a superior job of satisfying the needs of every Tax Payer who places his or her trust in us by asking their income taxes for them.
2. Excellence:
We excel in meeting the needs of our clients, while treating all with courtesy, respect, honesty, and fairness. We always make sure you have the maximum Deduction and Credits you deserve on your Tax returns.
3. Quality:
We take pride in the accuracy, thoroughness, and quality of our work. We appreciate creative thinking and suggestions for better options of making our clients get the maximum tax benefits on their returns.
4. Efficiency:
We assume a sense of urgency in completing your Tax Returns by employing state-of-the-art Tax Preparation Software and always seeking the most prudent ways of getting our clients all the Tax Benefits they deserve.
“At First Rate® Tax Services, Maximum Tax Refund is a Guarantee”……………
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