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Affordable Care Act’s Tax Effects Now Loom for Filers
DEC. 25, 2014
If you decided to skip health insurance this year, consider this: Unless you can prove you have a valid excuse, you will be liable for a penalty during the coming tax season — and the time to start making your case is now.
That’s not all. People who bought subsidized insurance through one of the marketplaces may have new tax forms to complete, while paying the penalty itself may demand some serious number-crunching.
The Internal Revenue Service is gearing up to answer questions, but it warns that only half of the callers may get through — and those who succeed may have to wait a half-hour or more.
“There are quite a number of moving parts that taxpayers have not had to deal with,” said Kristin Esposito, technical tax manager for the American Institute of Certified Public Accountants.
The Obama administration’s Affordable Care Act — including its penalty provision — is in effect for the first time this year and will be reconciled through a person’s tax return.
Paying the penalty may also deliver some surprises. People who were uninsured for more than three consecutive months may owe something. (And since the penalty will double next year, now is the time to determine how much that might cost, before it is too late to buy a health policy through a federal or state-run marketplace for 2015.)
“This is a learning experience for everyone involved,” said Roberton Williams, a senior fellow at the Tax Policy Center.
“When you combine that with all of the problems with the exchanges, there will be a lot of confusion and people will be sorting it out. I am sure the I.R.S. will be inundated with calls.”
But be prepared to hit redial. John Koskinen, the Internal Revenue Service commissioner, admitted in a recent speech that because of budget constraints, the agency may be equipped to answer just over half of the phone calls it receives. Many will get a “courtesy disconnect.”
EXEMPTIONS Consumer advocates said they were concerned that some taxpayers might not realize that they needed to apply for certain exemptions, and, in some cases, substantiate their circumstances. (An estimated 23 million people will qualify for an exemption in 2016, while many others will be granted a pass because of a hardship, according to a federal analysis.)
Once an exemption is approved (and if it’s not, the applicant can appeal), a taxpayer is sent an “exemption certificate number,” which should be entered on the tax return.
PENALTIES Uninsured people who cannot qualify for an exemption will be required to pay a penalty, also known as the individual shared responsibility payment. Even people who went without insurance for more than three months may have to pay something.
The penalties will rise sharply over the next couple of years, so taxpayers contemplating paying the penalty instead of buying insurance for the coming year should run those calculations soon: Open enrollment on the health care exchanges runs from Nov. 15 to Feb. 15.
For the 2014 tax year, individuals pay whichever is more: $95 or 1 percent of the portion of their modified adjusted gross income that exceeds the federal income tax filing threshold: $10,150, for example, for those with single filing status. But payments are calculated on a monthly basis for each household member.
Those figures are about to double. A family of four earning $100,000 who skipped coverage in the last year would owe just shy of $800 in 2014, but it would need to pay nearly $1,650 in 2015, according to the Tax Policy Center’s calculator, which can determine how much a taxpayer might pay.
There is some question about how aggressive the I.R.S. will be in collecting the penalty in its first year.
RECONCILING People who bought subsidized insurance on the exchanges received what is actually an advance on a tax credit. Since the amount of help taxpayers received was based on 2012 income, it will need to be reconciled against what they actually earned in 2014 — particularly if they earned more or less and did not update their income data on the exchange.
Some people will be surprised that they must pay some of that money back, or at least have it deducted from what they would have received in a refund. Conversely, people who earned less money in 2014 — and who received subsidies that were too small — may receive money back. Changes in life circumstances — a divorce, marriage, a new child — can also affect those numbers.
“This is the part that can be very complex,” said Kathy Pickering, executive director of the Tax Institute at H&R Block. “People think of the tax credit as a discount on their premium. But realizing it can be something you repay a portion of is going to be a surprise.”
DEC. 25, 2014
If you decided to skip health insurance this year, consider this: Unless you can prove you have a valid excuse, you will be liable for a penalty during the coming tax season — and the time to start making your case is now.
That’s not all. People who bought subsidized insurance through one of the marketplaces may have new tax forms to complete, while paying the penalty itself may demand some serious number-crunching.
The Internal Revenue Service is gearing up to answer questions, but it warns that only half of the callers may get through — and those who succeed may have to wait a half-hour or more.
“There are quite a number of moving parts that taxpayers have not had to deal with,” said Kristin Esposito, technical tax manager for the American Institute of Certified Public Accountants.
The Obama administration’s Affordable Care Act — including its penalty provision — is in effect for the first time this year and will be reconciled through a person’s tax return.
Paying the penalty may also deliver some surprises. People who were uninsured for more than three consecutive months may owe something. (And since the penalty will double next year, now is the time to determine how much that might cost, before it is too late to buy a health policy through a federal or state-run marketplace for 2015.)
“This is a learning experience for everyone involved,” said Roberton Williams, a senior fellow at the Tax Policy Center.
“When you combine that with all of the problems with the exchanges, there will be a lot of confusion and people will be sorting it out. I am sure the I.R.S. will be inundated with calls.”
But be prepared to hit redial. John Koskinen, the Internal Revenue Service commissioner, admitted in a recent speech that because of budget constraints, the agency may be equipped to answer just over half of the phone calls it receives. Many will get a “courtesy disconnect.”
EXEMPTIONS Consumer advocates said they were concerned that some taxpayers might not realize that they needed to apply for certain exemptions, and, in some cases, substantiate their circumstances. (An estimated 23 million people will qualify for an exemption in 2016, while many others will be granted a pass because of a hardship, according to a federal analysis.)
Once an exemption is approved (and if it’s not, the applicant can appeal), a taxpayer is sent an “exemption certificate number,” which should be entered on the tax return.
PENALTIES Uninsured people who cannot qualify for an exemption will be required to pay a penalty, also known as the individual shared responsibility payment. Even people who went without insurance for more than three months may have to pay something.
The penalties will rise sharply over the next couple of years, so taxpayers contemplating paying the penalty instead of buying insurance for the coming year should run those calculations soon: Open enrollment on the health care exchanges runs from Nov. 15 to Feb. 15.
For the 2014 tax year, individuals pay whichever is more: $95 or 1 percent of the portion of their modified adjusted gross income that exceeds the federal income tax filing threshold: $10,150, for example, for those with single filing status. But payments are calculated on a monthly basis for each household member.
Those figures are about to double. A family of four earning $100,000 who skipped coverage in the last year would owe just shy of $800 in 2014, but it would need to pay nearly $1,650 in 2015, according to the Tax Policy Center’s calculator, which can determine how much a taxpayer might pay.
There is some question about how aggressive the I.R.S. will be in collecting the penalty in its first year.
RECONCILING People who bought subsidized insurance on the exchanges received what is actually an advance on a tax credit. Since the amount of help taxpayers received was based on 2012 income, it will need to be reconciled against what they actually earned in 2014 — particularly if they earned more or less and did not update their income data on the exchange.
Some people will be surprised that they must pay some of that money back, or at least have it deducted from what they would have received in a refund. Conversely, people who earned less money in 2014 — and who received subsidies that were too small — may receive money back. Changes in life circumstances — a divorce, marriage, a new child — can also affect those numbers.
“This is the part that can be very complex,” said Kathy Pickering, executive director of the Tax Institute at H&R Block. “People think of the tax credit as a discount on their premium. But realizing it can be something you repay a portion of is going to be a surprise.”
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