Category Archives: Health Care

New Level of Shared Responsibility Penalty

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Don’t let this one get out of hand

UninsuredA part of the Affordable Care Act is the enactment of a tax penalty if you or your family does not have qualified health insurance coverage for the entire year. The new tax penalty, called the “shared responsibility payment” impacts taxpayers beginning in 2014. While the payment may have been manageable in 2014, it is going up quite a bit in 2015. Here is what you need to know.

Shared Responsibility Payment Calculation

greater of		 2014 NEW! 2015 Change
Flat Fee
(or)
$95.00 per adult
$47.50 per child
$285 maximum flat fee
$325.00 per adult
$162.50 per child
$975 maximum flat fee
+$230 per adult
+$115 per child
+$690 maximum flat fee
Cap Fee 1% of your yearly household income capped at the cost of the national average premium of the bronze level health plans available through the marketplace.* 2% of your yearly household income capped at the cost of the national average premium of the bronze level health plans available through the marketplace.* * Average premiums vary by state. No one knows what the new average will be, but it is expected to go up a minimum of 6%.

Note: If premiums are more than 8% of household income or the gap in coverage is less than three consecutive months or there is an approved hardship then the shared responsibility payment could be reduced.

Action to take

Arrow Get coverage. If you are currently uninsured, each month you delay in getting coverage increases the amount of the penalty you will be required to pay.
Arrow Plan for the penalty. If you know the penalty is coming, save money to make this payment when you file your tax return.
Arrow Shop around. Check with your employer and/or state agencies to see about available coverage. There are often programs and assistance available to make getting health care more affordable for most of us.

Alert. 800,000 Form 1095-A Errors

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1095-A Form In late February, the Government announced that 800,000 of the Form 1095-A’s they sent to taxpayers who used Healthcare.gov to purchase their health insurance in 2014 have errors in them. If you are impacted, you will receive an announcement of the error. You can also check to see if your form is wrong by logging into your Healthcare.gov account.

If you already filed your tax return, the Treasury Department is not requiring you to file an amended return. The corrected forms are being sent out in March, so you may need to wait for receipt of this form to file your taxes. Here is a link to the original announcement. Announcement: Form 1095-A Error

When to Notify the Healthcare Marketplace

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When to Notify the Healthcare MarketplaceAvoid a Premium Tax Credit bill at the end of 2014

For the millions who now use the Healthcare Marketplace to purchase their health insurance, it is important to keep your information with them up to date. Not only does this help ensure you have the proper health insurance coverage, but it also ensures your healthcare Premium Tax Credit is properly applied.

Per the IRS, here is a list of changes in circumstance that can impact the value of your Premium Tax Credit amount:
Bullet warning getting married,
Bullet warning the birth or adoption of a child,
Bullet warning divorce,
Bullet warning getting a new job,
Bullet warning losing a job,
Bullet warning moving,
Bullet warning changes in eligibility for employer or government sponsored health care coverage,
Bullet warning ANYTHING that impacts family size or composition,
Bullet warning ANYTHING that impacts your family income.

2015 Health Care Savings (HSA) Account Limits Announced

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2015 Health Care Savings (HSA) Account Limits AnnouncedThe savings limits for the ever-popular Health Savings Accounts (HSA) are now set for 2015. The new limits are outlined here with current year amounts noted for comparison purposes.

What is an HSA?

An HSA is a tax advantaged savings account to pay for qualified health care costs. The account consists of wages contributed on a pre-tax basis. There is no tax on the funds contributed or investment earnings as long as the funds are used to pay for qualified medical, dental and vision expenses. To qualify for this tax-advantaged account you must be enrolled in a “high deductible” health insurance program as defined by HSA rules.

The limits

Health Savings Account (HSA) Limits 2014 NEW! 2015 Change
Maximum Annual Contribution Self $3,300 $3,350 +$50
Family $6,550 $6,650 +$100
Add: 55+ catch up
contribution		 $1,000 $1,000 nc
Health Insurance Requirements
Minimum Deductible Self coverage $1,250 $1,300 +$50
Family coverage $2,500 $2,600 +$100
Out-of-pocket Maximum Self coverage $6,350 $6,450 +$100
Family coverage $12,700 $12,900 +$200

Note: HSAs require a qualified High Deductible Health Plan (HDHP). To qualify, a health insurance plan must meet minimum deductible requirements that are typically higher than traditional health insurance. In addition, your coverage must have reasonable out-of-pocket payment limits as set by the above noted maximums.

Not sure what an HSA is all about? Check with your employer. If they offer this option in their health care benefits, they will have information discussing the program and its potential tax benefits.

Health Insurance Penalty Starts Now!

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Time to be thinking about health insurance

Health InsuranceThe health care legislation commonly known as Obamacare has many provisions that are being implemented over a number of years. As we start 2014, those that currently have no health insurance could be facing a tax penalty.

Beginning in January, 2014, everyone will be required to have health insurance or face a potential penalty. The initial penalty will be $95 per individual, $285 per family or 1% of your income whichever is greater. There is also a potential penalty assessed on employers who fail to offer employees health care insurance.

What is not known, is whether there will be some penalty grace period due to all the sign up problems with the government’s web site. If you are uninsured, your best defense is to review your health insurance options and register for an appropriate health insurance policy as soon as possible.

Health Insurance Details

Detail 1 Every state is required to have an insurance exchange. This exchange is a web site where everyone can view health insurance options. Unfortunately, this is the area of Obamacare that has seen a lot of negative press due to system problems.
Detail 2 No pre-existing condition limitation. You are no longer to be refused insurance because of a pre-existing condition or be charged an incremental premium based on health or gender.
Detail 3 Buy or pay the penalty? Hopefully, not many will be faced with this dilemma. Part of the health insurance bill is the requirement for most small businesses to offer a qualified plan or face a penalty billed to their business.
Detail 4 Will I be penalized? There are exceptions to the penalty if you have to spend more than 8% of your household income on the cheapest health care insurance premiums. There are also subsidies if you cannot afford health care insurance. This is in the form of a health insurance premium tax credit if your household income is between 100 and 400 percent of the federal poverty level.

If you do not have health insurance start looking now. With proper planning you should be able to avoid the unpleasant task of facing a tax penalty at the end of 2014.

As always, should you have any questions or concerns regarding your situation please feel free to call.

Understand the New Health FSA Limits

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401K fee disclosures delayedMillions of Americans take advantage of their employer’s cafeteria plan that allows setting aside pre-tax dollars to be used to pay for qualified health care expenses. The problem with these plans has always been that if you do not use the funds in the account by the end of the year they are forfeited. Some employers have established an allowable “grace period rule” that gives an additional two months and 15 days to use the funds before they are forfeited.

New rules

The maximum annual amount that can be set-aside in Health FSA’s is now set at $2,500 (indexed to inflation after 2012). Old rules allowed this account level to be set by employers offering the benefit (usually $5,000). By reducing funds available for this benefit, the government is hoping it will help pay for the new health care law. With this law change, the IRS agreed to reconsider the long-standing “use it or lose it” rules within FSA’s.

Effective in 2013, employers can opt to change their Health FSA plans to allow up to $500 in unused funds to be carried over into the following year. If an employer opts to do this, they need to forgo any allowable grace period rules currently within their FSA plan.

What you need to know

Check Don’t assume you can carry over $500. With all the press around this rule change, many run the risk of assuming you don’t have to spend all your Health FSA funds by the end of the year. Remember, your employer must first make the rule change in their FSA plan before you can carry over unspent funds.
Check Look for a notice. Ask your employer’s human resource department what the company’s plan is with the new rule. You will need to plan for next year’s withholding based on their answer.
Check Contributions and spending must match. Just because you carry over $500 into next year, do not assume you can ask for expense reimbursements over the $2,500 limit during any one year. You cannot. So if you carry over funds, you may need to reduce your contribution into your FSA the next year.
Check A Health Savings Account (HSA) is usually a better option. Don’t confuse the Health FSA with the HSA benefit. If you are in a qualified high deductible health insurance plan, you may also be an active participant in an HSA. This pre-tax savings account can be used to pay for qualified medical expenses AND unused funds can be carried over into future years. As long as the funds are used for qualified expenses, there is no tax obligation. This type of savings account is usually preferential over the Health Care FSA option.

Sound confusing? It can be. Until you receive definitive word your employer is changing their plan, it is best to use up your FSA funds prior to the end of your plan year.

Beyond the Noise of Health Care Initiatives

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A dozen tax planning triggersTax provisions for individuals and families impacted by the Affordable Care Act (also known as Obamacare) will be upon us in 2014. We are seeing the approach of Obamacare in many forms; by Congress members filibustering, through nightly news reports, constant advertisements, and announcements of businesses migrating away from offering health care insurance for some of their employee groups. How does someone make sense out of all this?What is happening now

From October 2013 thru March 2014, the open enrollment phase to obtain health insurance through the Health Insurance Marketplace begins. This Insurance Marketplace is a legal requirement for each state to publish health insurance options and related costs to all residents in their respective state. So please be prepared to be inundated with commercials from each state promoting their new Health Insurance Marketplace and the need for you to review your health coverage. Remember, unless something changes, those who do not have health insurance in 2014 could face additional federal tax in 2014.

What you need to know

Check Employer-provided insurance. If you currently have health insurance through your employer, the current media storm will, in all likelihood, not apply to you.
Check Sole-proprietors. If you are a sole-proprietor you may wish to review your current insurance coverage with the policies available in the Health Insurance Marketplace.
Check Currently without health insurance. If you do not have health insurance, pay attention. Not only will the Marketplace be a good resource to shop for a health insurance policy, your income may also qualify you for a federal Premium Tax Credit to lower your health insurance cost.

If you wish to learn more and determine the best course of action for you and your family visit www.healthcare.gov.

As always, should you have any questions or concerns regarding your situation please feel free to call.

Tax Change is Coming

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Tax Change is ComingWhile a distant memory, in January of 2013 Congress passed sweeping tax legislation. Many of these tax law changes will now be felt as you file this year’s tax return. Here are five worth noting.

Check Self-employed FICA. Wage earners have already felt the impact of the social security tax rate reset to the traditional 6.2% (temporary rate in 2012: 4.2%). However, self-employed workers may feel this impact when filing their annual tax return.right arrowaction: If receiving self-employed income, review your quarterly filings to ensure you have accounted for this incremental tax hike.
Check Higher Taxes. If your income is above $200,000 single or $250,000 married filing jointly, your taxes will be going up. In some cases it may be up dramatically. Why? Your tax return may be subject to the following increases; a new 39.6% tax rate, itemized deduction phase-out, personal exemption phase-out, increase in long-term capital gains taxes, and more.right arrowaction: Conduct an income tax forecast to review the potential impact on your situation. This is especially true for small business owners in sole proprietorships, Sub Chapter S Corporations, and partnerships as your business profits will be taxed on your individual tax return.
Check Medicare Surtax. To help pay for the health care initiatives, 2013 marks the first year of new Medicare surtaxes for those whose incomes surpass $200,000 single or $250,000 joint. The extra tax may have been applied to your paycheck, but because of the marriage penalty in this part of the code, you may be subject to the additional tax when your income is combined with your spouse’s income at tax filing time.right arrowaction: Conduct a 2013 tax forecast. This is especially important for married couples whose individual incomes do not pass the threshold, but when combined with a spouse do.
Check Dividends and Long-term Capital Gains. While qualified dividends will not be taxed as ordinary income, the maximum tax rate goes up 33% (from 15 to 20%). The maximum tax rate on qualified capital gains also goes from 15 to 20%.right arrowaction: Year-end planning is now more important to determine whether to sell investments. Try to offset gains with losses wherever possible.
Check Medical Expense Threshold Moves to 10%. For those under the age of 65, the medical expense threshold is now 10% of your Adjusted Gross Income (AGI). You may only deduct qualified medical expenses that exceed this percentage of your AGI. The threshold remains 7.5% if you are 65 years old or older.right arrowaction: Avoid the tendency to stop tracking medical expenses because you think you will never hit the threshold. Remember it often only takes one major medical emergency to make all other medical, dental, and vision care expenses deductible.

While the impact of these changes will not be felt until you file your 2013 tax return, it may make sense to review your situation and be prepared for these upcoming changes.

Tax Surprises for Newly Retired

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5 surprises to know about

You’ve got it all planned out. Your retirement savings plans are full, you have started receiving Social Security benefits, and your Pension is ready to go. Everything is planned, what could go wrong? Here are five surprises that can turn your plan on a dime.

1. Health emergency and Long-term Care. When a simple procedure could cost thousands, health care costs can put a huge dent in your plan. Long-term care can cost thousands per month. Have you planned for this? If your health insurance is not adequate you may need to pull money out of your retirement plan to pay the bills. While this withdrawal may not be subject to a penalty, it might be subject to income tax if the funds are from a pre-tax account.

Tip: Look into creative ways to enhance your health insurance coverage including supplemental health insurance and prescription drug cost coverage. Consider long-term care insurance and other alternative ways to reduce your potential living needs.

2. Taxability of Social Security benefits. If you have excess earnings, your Social Security benefits could be reduced. Even worse, if you are still working, your benefits could be subject to income tax.

Tip: If this impacts you, consider conducting a tax planning session to better understand your options including the possibility of delaying the receipt of Social Security benefits.

3. Your pension plan. Understand if your pension is in good financial health. Often pensions will offer a lump-sum payout option for you. Should you take it?

Tip: Review your pension plan’s annual statement. How solid is it? If there are risks, consider cash out alternatives and planning for the potential drop in future income.

4. Minimum Required Distribution (RMD). Forgot to take your minimum required distribution from your retirement plans this year? The tax bite could be quite a surprise as the penalty on the amount not withdrawn is 50%!

Tip: Select a memorable date (like your birthday) to review your RMD and take action so this tax surprise does not impact you.

5. Future Tax Rates. The federal government is spending over $1 trillion more than it brings in each year. Cash starved states are looking for new tax revenue. Don’t be surprised when future tax rates continue to rise during your retirement.

Tips:

  • Create a retirement plan with higher state and federal tax rates
  • Plan for increases in health care costs through Medicare
  • Plan for more tax on Social Security benefits
  • Plan for higher capital gain and dividend taxes (now 20% versus 15%)