It feels like the moment guidance is issued, something gets repealed. delayed, clarified or changed. It’s getting more difficult to keep up with the changes unless you’re wired directly into the minds of Congress and the IRS. However, CB Tax Accounting can fill in the gaps and keep you up-to-date.
What We Know
We know that the Affordable Care Act, ACA, is massive – so massive to can take several years to fully implement. Or, if some in Congress eventually get their way, it could be repealed altogether. Whatever takes place, it’s important to be aware of the timeline so you can properly prepare to meet the outcomes.
Parts of the legislation have already become effective. For instance, contributions to flexible spending arrangements are limited to $2,500 annually in 2013. Also for 2013, the Adjusted Gross Income, AGI, threshold for deducting medical expenses has increased from 7.5 to 10 percent for taxpayers below 65 years. For taxpayers over 65, the threshold does not kick in until 2017. The Net Investment Income kicks in for higher income taxpayers, as does the additional hospital insurance withholding (Medicare tax).
The IRS has not delayed the individual mandate to acquire health insurance. If taxpayers are not provided health insurance through their employers, they can purchase individual health insurance coverage through an exchange. The open enrollment period to purchase health insurance begins October 1st, 2013. Those who purchase health insurance through an exchange may be eligible for the new advanced Premium Tax Credit that would immediately reduce monthly premiums. Many states are creating their own exchanges while others are relying on Federal assistance.
What We Don’t Know
For 2012, the IRS issued transitional relief for employers who issue 250 or more W-2 forms reporting the cost of employer-sponsored health insurance coverage in Box 14. At this point CB Tax Accounting does not know if relief will be granted for 2013 W-2s. Until we have further guidance from the IRS, we can assume that the transitional relief applies.
There’s a lot of talk about delaying the individual mandate but we do not know if that will actually happen. The employer mandate has already been delayed one year and now becomes effective in 2015. The reason for the delay was the lack off guidance, complexity of the law and the fact that business owners needed more time to make arrangements to comply with all the requirements.
The same argument befalls individuals; therefore, if taxpayers do not obtain health insurance by January 1st, 2014, they will be subject to a penalty, which we already know is really an additional tax. This tax is computed as either a flat amount or a percentage of household income. The definition of household income remains a bit of a mystery. The law states that household income is the taxpayer’s Modified Adjusted Gross Income or MAGI, plus the aggregate MAGI of all other individuals who are taken into account in determining the taxpayer’s family who are also required to file an income tax return for the year.
“Family” mean the individuals for whom a taxpayer claims a personal exemption deduction under section 151 for a tax year. What if a taxpayer claims a parent as a dependent and resides in another state? Would the IRS now require us to obtain their parent’s tax information? Until further guidance is issued, we have nothing else to go on. What if a dependent only needs to file a return to get a refund of withheld taxes? Still, we have no further information.
As the law is written, large employers are required to offer health insurance to their employees. A large employer is defined as one that employers at least 50 full-time and full-time equivalent employees. This determination is made based on the number of hours worked. Full-time is defined as 30 hours per week (not the 40 hours you work a week). Of course, this can also be changed.
There are penalties that will be assessed on employers for not complying with the healthcare mandate. Whether it’s a penalty or tax, employers will have to work complex calculations to determine the correct amount to pay the IRS. Also, individuals who do not obtain health insurance will face the same complexities with amounts that could be changed in the future.
My role is to keep you informed of the ever-changing rules and regulations handed down by the IRS and so guide you through the maze they arrive with. Helping you to remain compliant to avoid the pitfalls. Keep in mind, this tax season; be prepared to answer additional questions all because of the changes that may arise. This would be made quite easy, as I will provide questionnaires for you to fill in with the necessary information and to properly compute any required penalties.
If you need more information on the health insurance mandate, please contact our office.
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