CARL WATTS & ASSOCIATES
October 14, 2013
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Washington DC
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tel/fax 202 350-9002 |
| This newsletter’s purpose is to inform you on the most recent and upcoming stages of the Affordable Care Act and how they will reflect on your taxes. |
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As we stated in a previous newsletter, the Affordable Care Act (ACA) is now law and is considered to represent the most significant regulatory overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965.
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The open enrollment period to purchase health care coverage through the new Health Insurance Marketplace began Oct. 1, 2013.
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The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from Oct. 1, 2013, through March 31, 2014. If you are seeking information about how to obtain health care coverage or financial assistance to purchase health care coverage for you and your family, visit the Health and Human Services website, HealthCare.gov. |
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All individual Americans who are not provided with health insurance by their employers, Medicare or Medicaid are expected to sign up for an individual health insurance policy between Oct. 1, 2013, and March 31, 2014. The policies will go into effect Jan. 1, 2014. |
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| If you fail to purchase a policy, you will face a tax penalty of either $95 per adult or 1 percent of income, whichever is greater. By 2016, the penalties will be $695 or 2.5 percent of income. |
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During enrollment through the Marketplace, using information you provide about your projected income and family composition for 2014, the Marketplace will estimate the amount of the Premium Tax Credit you will be able to claim for the 2014 tax year that you will file in 2015. |
| Approved 2014 health insurance rates on the exchange will be 53% less expensive than what is currently on the market because more people will be entering the insurance pool. |
| If your income ranges from 138% to 400% of the federal poverty level — up to $45,960 for an individual or $94,200 for a family of four — you may be eligible for financial assistance in purchasing coverage through the exchange. |
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Individuals with incomes under $28,725 and families with incomes of under $99,075 may also receive help with copayments and deductibles.
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| There are four health plan levels available through the state marketplaces. The plans should all cover the same services but vary in the level of costs they cover: bronze covers 60% of medical costs, silver covers 70%, gold covers 80% and platinum covers 90% of medical costs. The lower your out-of-pocket costs, the higher your premium. |
| Under the law, the amount of money people will have to pay out-of-pocket each year for medical and prescription drug costs will be capped at $6,350 for individuals and $12,700 for a family. These limits are separate from the monthly premiums people pay. The limits take effect in 2014 for those buying insurance on the state health insurance exchanges. For those with employer-based coverage, the restrictions will be fully in place in 2015. |
| To claim the premium tax credit, you must get insurance through the Marketplace. |
| You can elect to have advance payments of the tax credit sent directly to your insurer during 2014, or wait to claim the credit when you file your tax return in 2015. If you choose to have advance payments sent to your insurer, you will have to reconcile the payments on your 2014 tax return filed in 2015. |
The Affordable Care Act
- an Update -
- an Update -
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| If you do not have a tax filing requirement, you do not need to file a 2013 federal tax return to establish future eligibility or qualify for future financial assistance, including advance payments of the premium tax credit to purchase health insurance coverage through a Health Insurance Marketplace. |
| Of course, if you itemize deductions, you can deduct your unreimbursed medical and dental expenses that exceed 10 percent of your adjusted gross income on your 2013 tax return. The 7.5 percent threshold will remain for those 65 and older for tax years 2013 through 2016. |
| You may be liable for Additional Medicare Tax if your wages, compensation, or self-employment income (together with that of your if filing a joint return) exceed the threshold amount for your filing status ($250,000 for joint filers and $200,000 for singles). |
| The additional Medicare Tax rate is of 0.9% and applies to wages and compensation above the threshold amount received after December 31, 2012 and to self-employment income above a threshold amount received in taxable years beginning after December 31, 2012. |
The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.
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The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits. |
| The U.S. Government is currently funded at sequestration levels (meaning that there will be automatic reductions to federal discretionary programs for the next 9 fiscal years). |
| Small businesses with fewer than 25 full-time employees who make $50,000 or less a year may be eligible for tax credits to help owners purchase health insurance for their employees. Small businesses will also have access to specialized marketplaces called the Small Business Health Options Program (SHOP on HealthCare.gov) that will help them compare the costs and benefits of insurance options for their employees. |
| Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments issued to certain small tax-exempt employers claiming the refundable portion of the Small Business Health Care Tax Credit under Internal Revenue Code Section 45R, are subject to sequestration. |
| This means that refund payments processed on or after Oct.1, 2013, and on or before Sept. 30, 2014, to a Section 45R applicant (which refers to small employers that provide health insurance coverage to their employees for which they are entitled to a tax credit) will be reduced by the fiscal year 2014 sequestration rate of 7.2% , irrespective of when the original or amended tax return was received by the IRS. The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change. |
| Since we are still under the government shutdown, let us point out how this situation may or may not affect your taxes. First of all, you are not to stop paying taxes, nevertheless, if you're being audited, you may get a temporary reprieve. On the other hand, you will not get taxpayer assistance from the IRS either. |
Whatever the case, we will once again advise you to get professional help in all your dealings with the IRS.
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