By Jesse Wood
Jan. 26, 2015. Local accountants with decades of experience imagine the upcoming tax season to be among the most challenging of their careers with the intertwining of health insurance and taxes for individual taxpayers
“The continued implementation of Obamacare mandates has led to significant confusion as taxpayers struggle to understand the available credits, exemptions and subsidy issues that are now part of an increasingly complex tax landscape,” said accountant Gwyn Parsons of Gwyn Parsons, CPA, PLLC.
Parsons mentioned long waits taxpayers are experiencing while seeking guidance from the federal government on the new requirements. He said that many regulations, especially related to small businesses, “remain unclear to both taxpayers and lawmakers.”
In addition Parsons noted new terminology, such as “Minimum Essential Coverage,” that exists this tax season and new tax forms (1095-A, 8965, 8962, etc.) that individuals, depending on specific situations, will have to file. (See a breakdown of the forms below.)
“In summary, the issues are complex, technical, and in many cases, confusing to even seasoned tax professionals, ” Parsons said in a statement. “This tax season has the potential to be one of the most challenging in my 35 years of tax preparation.”
Another accountant in the High Country, who spoke on the condition of anonymity, said that this year, “of course,” will be the most challenging tax season.
This accounted noted many of the challenges that Parsons cited and said the following tax season should be a “lot easier” after this go round.
This tax season, however, will be trial-and-error and this accountant said that nobody will know if they will have to pay a penalty, pay back subsidies or receive a bigger tax refund “until you do your taxes.”
Tax Penalty, Exemptions
This past year was the first year that individuals were required to have health insurance. If you didn’t have health insurance for at least nine months in 2014, you are subject to a fine, also known as the individual shared responsibility payment, from the IRS unless you qualify for an exemption.
To add to the confusion, Eric Schneider, an outreach and eligibility specialist, also known as a healthcare navigator, with High Country Community Health, said that certain exemptions required a form to be filled out and mailed last year in advance of tax season, while other exemptions can be granted through the tax forms filed in the next few months.
Schneider said that some folks who didn’t fill out required exemption forms in advance may be assessed the penalty for not having insurance – even if they would have been exempt. Schneider said that it’s unclear if any leniency will be granted this first year for not filling out specific exemption forms before tax season began.
If you don’t qualify for an exemption, then the payment for having no insurance in 2014 is the greater of the two amounts:
- 1 percent of household income that is above tax return filing threshold for filing status ($10,150 for individuals, $20,300 for married couples, see other tax thresholds below)
- Flat dollar amount, which $95 per adult and $47.50 per child; up to a maximum of $285 per family
Also, see examples for a single adult and a married couple with children on the IRS website here.
For each month you didn’t health insurance, you will be required to pay one-twelfth of the annual tax payment.
Below are some of the exemptions, among more than a dozen, that folks can be eligible for, and a complete list of all exemptions is listed here.
- Employer-sponsored coverage or bronze level health plan is unaffordable (more than 8 percent of actual household income for year).
- Short-coverage gap (went without coverage for less than three months)
- Resident of a state that didn’t expand Medicaid and your household income is below 138 percent of the federal poverty line for your family size
- Experienced a hardship such as foreclosure, family death, eviction, domestic violence, homelessness and other hardships
Household income is defined by the IRS as “the adjusted gross income from your tax return plus any excludable foreign earned income and tax-exempt interest you receive during the taxable year. Household income also includes the adjusted gross incomes of all your dependents who are required to file tax returns.”
Adjusted gross income includes, for example, money derived from wages, salaries, tips, interest, Social Security benefits, capital gains or losses, dividends, alimony received, business income, rental and real estate income, distributions from retirement accounts, farm income and much more.
Ramifications for Underestimating, Overestimating Income
To receive federal subsidies for health insurance, individuals estimated their income when applying through the Health Care Marketplace last year. Essentially, the lower the income, the greater portion of health insurance premiums the government will pay.
(An exception to the rule is what is referred to as the Medicare Gap, where low-income workers make too much to apply for Medicaid and not enough to receive federal subsidies in the Health Care Marketplace. The Supreme Court ruled that Medicaid expansion is optional for states, and Gov. Pat McCrory rejected the expansion in North Carolina in 2013 – just as about 20 other GOP-led states did.
According to the Kaiser Family Foundation, “In states that decide to expand Medicaid, tax credit eligibility effectively ranges from 138 percent to 400 percent of the poverty level (because almost all people with incomes below 138 percent of poverty are eligible for Medicaid and therefore are not eligible for subsidized Marketplace coverage). In states that do not decide to expand Medicaid, tax credit eligibility ranges from 100 percent to 400 percent of poverty. Residents of these states who have incomes below 100 percent of poverty and who do not qualify for Medicaid under their state’s eligibility criteria are not eligible for the premium tax credit. The Kaiser Family Foundation estimates that 4.5 million Americans living in states that did not decide to expand Medicaid fall into this coverage gap.”)
Depending on how accurate individuals projected their future earnings for 2014, people may be in for a surprise – good or bad. If you overestimated your projected income and made less than you predicted, then you will more than likely receive a tax credit in the form of a tax return.
However if you made more money than you thought you were going to make in 2014, then you will likely have to pay back some of the federal subsidies you received to the IRS.
“It’s going to be very interesting. I’ll just say that,” Schneider said. “It’s kind of confusing because this is the first time you can claim a tax credit in advance.”
According to Kaiser Family Foundation, the maximum repayment for those with income less than 200 percent of the federal poverty level is $300 for individuals and $600 for families.
For those with income in between 200 and 300 percent of the federal poverty level, the maximum repayment is $750 for individuals and $1,500 for families. For those with income 300 to 400 percent of federal poverty level, the maximum repayment is $1,250 for individuals or $2,500 for families.
As Scheider said that anybody whose income is above 400 percent of the federal poverty level shouldn’t be eligible for subsidies, and the Kaiser Family Foundations reports that individuals and families that received subsidies but fell into the above 400 percent category, must payback the full amount.
The federal poverty level is different according to how many people are in a family.
See a couple charts from the Kaiser Family Foundation below. Also see the website of the Kaiser Family Foundation, which has a Q&A explaining the healthcare reform and its implications, including cost-sharing options for those enrolled in Silver Plans.
2014 Tax Forms for Health Insurance
If you are enrolled in a plan through the Health Insurance Marketplace, you will receive a 1095-A form, which is similar to important tax documents such as W-2 forms.
If you are enrolled through a plan outside of the Health Insurance Marketplace, you will not receive a 1095-A form. Instead, you will just mark a box on the federal tax form.
If you are not enrolled in a plan at all, then you will either pay a fine (see below) or claim an exemption (see qualifications below) with tax form 8965.
Tax form 8962 is used to determine a premium tax credit for 2014 or as Parsons said, “to reconcile benefits received to benefits actually due.”
For more information, click here.
For tax forms, documents and phone numbers, click here.
2015 Enrollment Deadline is Feb. 15
The enrollment deadline to purchase health insurance through the Health Insurance Marketplace ends on Feb. 15.
This is the last date that someone can receive federal subsidies – unless they qualify for the special enrollment period due to a life-changing event or special hardship.
Schneider said that there are a number of options for people seeking help navigating the new healthcare landscape.
Schneider said that High Country Community Health has as a bilingual navigator, Sabrina, who can be reached at 828-292-0769. Scheider is still available for individual appointments and can be reached at 828-773-7297.
In addition, volunteers at the Watauga County Public Library, which can be reached at 828-264-8784, and the Watauga County Project on Aging, which can be reached at 828-265-8090, are able to help people navigate the enrollment process.
On Feb. 10, Legal Aid of NC will have a team of navigators in Newland to help people enroll.
Schneider encourages people to begin this enrollment process as soon as possible and not wait until the Feb. 10 deadline to begin – just in case difficulties are encountered.
Open enrollment began in November and will soon close before opening again later in the year. See this need-to-know list for the 2015 enrollment process that Schneider compiled and High Country Press published late last year.
Schneider clarified that his office isn’t allowed to help people with their taxes – only to help them enroll in the marketplace.
Looking Ahead To Next Year
While this tax season is expected to be challenging, accountants expect a daunting tax season the following year as well because of the Obamacare employer mandates that go into effect.
The anonymous accountant quoted earlier in the story said that the Affordable Care Act (Obamacare), U.S. Department of Labor and the IRS have different laws pertaining to healthcare.
“Nobody knows what is the correct answer because there are conflicting answers due to there being three different organizations that have three different laws and they haven’t coordinated,” this person said.
Until then, let’s enjoy this tax season, which is already underway.