MANDATORY HEALTH INSURANCE WILL BEGIN ON JANUARY 1, 2014
Beginning in 2014 the Patient Protection & AffordableCare Act (the health care legislation sometimes known as Obama Care) will impose the new requirement that U.S. persons, with certain exceptions, have minimal, essential health care insurance.
A minimum essential health care policy is one in which the insurer pays 60% of the average medical expenses incurred by an average person over the course of one year.
How this will affect your family will depend upon a number of issues:
Already insured - If you will already be insured through an employer plan, Medicare, Medicaid, the Veterans Administration, or a private plan that provides minimal, essential care, then you will not be subject to any penalties under this new law.
Exempt from the mandatory insurance requirement- The following individuals will be exempt from the insurance mandate and willnot be subject to a penalty for being uninsured:
Individuals who have a religious exemption
Those not lawfully present in the United States
Incarcerated individuals
Those who cannot afford coverage based on formulas contained in the law
Those who have income below the federal income tax filing threshold
Those who are members of Indian tribes
Those who were uninsured for short coverage gaps ofless than three months
Those who have received a hardship waiver from theSecretary of Health and Human Services, who are residing outside of the UnitedStates, or who are bona fide residents of any possession of the United States.
Cannot afford coverage- Individuals and families whose household income is between 100% and 400% of the federal poverty level will qualify for a varying amount of subsidy to help pay for the insurance in the form of a Premium Assistance Credit. To qualify for that credit, the insurance must be acquired from an American Health Benefit Exchange operated by the individual or family’s state, or by the Federal Government. These exchanges are scheduled to be up and running as of October 1, 2013, and the policies purchased through them will be effective as of January 1, 2014.
It is important to note that the subsidy is really just a tax credit based upon family income. It can be estimated in advance and used to reduce the monthly insurance premiums; it can be claimed as a refundable credit on the tax return for the year; or it can be some combination of both. However, it is based upon the current year’s income and must be reconciled on the tax return for the year. If too much was used as a premium subsidy, it must be repaid. If there is excess, it is refundable.
If household income is below 100% of the poverty level, the individual or family qualifies for Medicaid.
Penalty for noncompliance - The penalty for noncompliance will be the greater of either a flat dollar amount or a percentage of income:
For 2014, $95 per uninsured adult ($47.50 for achild) or 1 percent of household income over the income tax filing threshold
For 2015, $325 per uninsured adult ($162.50 for achild) or 2 percent of household income over the income tax filing threshold
For 2016 and beyond, $695 per uninsured adult ($347.50for a child) or 2.5 percent of household income over the income tax filing threshold.
Flat dollar amounts - The flat dollar amount for a family will be capped at 300% of the adult amount. For example,the maximum in 2016 for a family will be $2,085 (300% of $695). The child rate will apply to family members under the age of 18.
Overallpenalty cap - The overall penalty will be capped at the national average premium for a minimal, essential coverage plan purchased through an exchange. This amount won’t be known until a later date
.
Premium Assistance Credit - The Health Insurance Subsidy For Lower Income Individuals and Families
Beginning in 2014, as part of the Patient Protection and Affordable Health Care Acts, allU.S. persons, with certain exceptions, must have minimal essential health care coverage or face a tax penalty.
Recognizing this requirement could present a serious financial problem for lower-income individuals and families who do not have employer-provided coverage or other forms of insurance, Congress included a tax credit in the law to help them pay for their insurance.
The amount of the tax credit, known as the Premium Assistance Credit, is based on the individual or family’s income as it compares to the Federal poverty guidelines.Those with household income at 100% of the poverty level get the largest credit, and the credit is reduced for higher incomes and completely phased out when the income reaches 400% of the poverty level. You might be wondering why those with income under 100% of the poverty level do not qualify for the credit; they qualify for Medicaid.
The credit is refundable and computed on the tax return for the year. However,that means the credit will not be available until the tax return is filed in the following year. Understanding this problem, Congress allows an advanced insurance premium subsidy to reduce the insurance premiums. Then, the advanced subsidy and premium assistance credit are reconciled on the tax return and any excess credit is refunded (if other taxes aren’t owed), or some portion of the subsidy in excess of the credit is repaid.
To qualify for the premium assistance credit, the insurance must be purchased through the state’s American Health Benefit Exchange or, if the state does not have an insurance exchange, the federal exchange. In addition, to qualify for the credit the taxpayer:
Cannot be claimed as a dependent by another person;
Cannot be eligible for Medicaid, Medicare,employer-sponsored insurance, or other acceptable types of coverage;
If married, must file a joint tax return; and
Cannot be offered minimum essential coverage under an employer-sponsored plan. An individual is eligible for employer-sponsored minimum essential coverage only if the employee’s share of premiums is“affordable” and the coverage provides “minimum value.”
When determining family size for computing this credit, the family size is the same as the number of individuals for whom the taxpayer is allowed an exemption deduction for the tax year.
The term household income includes the modified adjusted gross income (MAGI) of the taxpayer plus the sum of MAGIs of all individuals who were taken into account when determining the taxpayer’s family size and who were required to file a tax return.
The term MAGI for purposes of this credit means adjusted gross income increased by any foreign earned income exclusion, the excluded portion of Social Security and Railroad Retirement benefits, and tax-exempt interest income.
Insurance through the exchanges will be effective January 1, 2014. Exchanges will be accepting applications in the fall in preparation for the January 2014 effective date.
Congress Puts Lid On Health Flexible Spending Arrangements
As part of the Patient Protection and Affordable Care Act (new health care law), employee contributions to health flexible spending arrangements (health FSA) are now being limited to a maximum pre-tax contribution of $2,500.
Employers are able to establish what is referred to as cafeteria plans fort heir employees. These arrangements allow employees to allocate a portion of their otherwise taxable compensation to nontaxable benefits. Thus, the amounts paid by both the employer and employee to fund the cafeteria plan are excluded from the employee’s gross income.
Cafeteria plans are used to pay a variety of employee expenses, including group-term life insurance on an employee’s life (up to the excludable $50,000amount), employer-provided accident and health plans, accidental death and dismemberment policies, dependent care assistance program, adoption assistance program, contributions to a 401(k) plan, health savings account (HSA)contributions, long- and short-term disability coverage and health flexible spending arrangements (FSAs).
Health FSAs are benefit plans established by employers to reimburse employeesfor health care expenses, such as deductibles and co-payments. They are usually funded by employees through salary reduction agreements (and termed “pre-taxcontributions”), although employers may contribute as well. Qualifying contributions to and withdrawals from FSAs are tax-exempt.
Prior to 2013, an employer could establish its own FSA plan’s contributionlimits. That continued to be true until the beginning of 2013, when Congress,as a way to partially pay for provisions in the new health care law, put a cap of $2,500 on FSA contributions. The $2,500 cap is inflation adjusted for future years.
This new $2,500 FSA limitation does not impact dependent care FSAs, health savings accounts, Archer medical savings accounts, or employee contributions toward health insurance premiums.
The limitation is on an employee-by-employee basis. That is, $2,500 is the maximum amount that an employee may contribute in 2013, regardless of the number of individuals (e.g., spouse or dependents) whose medical expenses maybe reimbursed under the plan. However, if two people are married, and each has the opportunity to participate in a health FSA, whether through the same mployer or through different employers, each may contribute up to $2,500.
The new health care law has many complicated elements. If you have questionsregarding FSAs or other tax provisions in this law, please give this office a call.
Franklin Katz, ATP, PA, PB
Frank's Tax & Business Service
315 E. King St.
Kings Mountain, NC28086
704-739-4039
E-Mail: [email protected])
Web: www.prep.1040.com/frankstax
IRS Circular 230 Notice: Unless expressly stated otherwise inthis
transmission, any tax advice contained herein, forwarded with or attached to
this message was not and is not intended to be used, nor may it be relied
upon or used, by any taxpayer for the purpose of (1) the avoidance of any
tax-related penalties under the Internal Revenue Code or applicable state or
local tax law provisions, or (2) promoting, marketing or recommending to
another party any tax transaction or tax-related matters that may be
addressed herein.
Beginning in 2014 the Patient Protection & AffordableCare Act (the health care legislation sometimes known as Obama Care) will impose the new requirement that U.S. persons, with certain exceptions, have minimal, essential health care insurance.
A minimum essential health care policy is one in which the insurer pays 60% of the average medical expenses incurred by an average person over the course of one year.
How this will affect your family will depend upon a number of issues:
Already insured - If you will already be insured through an employer plan, Medicare, Medicaid, the Veterans Administration, or a private plan that provides minimal, essential care, then you will not be subject to any penalties under this new law.
Exempt from the mandatory insurance requirement- The following individuals will be exempt from the insurance mandate and willnot be subject to a penalty for being uninsured:
Individuals who have a religious exemption
Those not lawfully present in the United States
Incarcerated individuals
Those who cannot afford coverage based on formulas contained in the law
Those who have income below the federal income tax filing threshold
Those who are members of Indian tribes
Those who were uninsured for short coverage gaps ofless than three months
Those who have received a hardship waiver from theSecretary of Health and Human Services, who are residing outside of the UnitedStates, or who are bona fide residents of any possession of the United States.
Cannot afford coverage- Individuals and families whose household income is between 100% and 400% of the federal poverty level will qualify for a varying amount of subsidy to help pay for the insurance in the form of a Premium Assistance Credit. To qualify for that credit, the insurance must be acquired from an American Health Benefit Exchange operated by the individual or family’s state, or by the Federal Government. These exchanges are scheduled to be up and running as of October 1, 2013, and the policies purchased through them will be effective as of January 1, 2014.
It is important to note that the subsidy is really just a tax credit based upon family income. It can be estimated in advance and used to reduce the monthly insurance premiums; it can be claimed as a refundable credit on the tax return for the year; or it can be some combination of both. However, it is based upon the current year’s income and must be reconciled on the tax return for the year. If too much was used as a premium subsidy, it must be repaid. If there is excess, it is refundable.
If household income is below 100% of the poverty level, the individual or family qualifies for Medicaid.
Penalty for noncompliance - The penalty for noncompliance will be the greater of either a flat dollar amount or a percentage of income:
For 2014, $95 per uninsured adult ($47.50 for achild) or 1 percent of household income over the income tax filing threshold
For 2015, $325 per uninsured adult ($162.50 for achild) or 2 percent of household income over the income tax filing threshold
For 2016 and beyond, $695 per uninsured adult ($347.50for a child) or 2.5 percent of household income over the income tax filing threshold.
Flat dollar amounts - The flat dollar amount for a family will be capped at 300% of the adult amount. For example,the maximum in 2016 for a family will be $2,085 (300% of $695). The child rate will apply to family members under the age of 18.
Overallpenalty cap - The overall penalty will be capped at the national average premium for a minimal, essential coverage plan purchased through an exchange. This amount won’t be known until a later date
.
Premium Assistance Credit - The Health Insurance Subsidy For Lower Income Individuals and Families
Beginning in 2014, as part of the Patient Protection and Affordable Health Care Acts, allU.S. persons, with certain exceptions, must have minimal essential health care coverage or face a tax penalty.
Recognizing this requirement could present a serious financial problem for lower-income individuals and families who do not have employer-provided coverage or other forms of insurance, Congress included a tax credit in the law to help them pay for their insurance.
The amount of the tax credit, known as the Premium Assistance Credit, is based on the individual or family’s income as it compares to the Federal poverty guidelines.Those with household income at 100% of the poverty level get the largest credit, and the credit is reduced for higher incomes and completely phased out when the income reaches 400% of the poverty level. You might be wondering why those with income under 100% of the poverty level do not qualify for the credit; they qualify for Medicaid.
The credit is refundable and computed on the tax return for the year. However,that means the credit will not be available until the tax return is filed in the following year. Understanding this problem, Congress allows an advanced insurance premium subsidy to reduce the insurance premiums. Then, the advanced subsidy and premium assistance credit are reconciled on the tax return and any excess credit is refunded (if other taxes aren’t owed), or some portion of the subsidy in excess of the credit is repaid.
To qualify for the premium assistance credit, the insurance must be purchased through the state’s American Health Benefit Exchange or, if the state does not have an insurance exchange, the federal exchange. In addition, to qualify for the credit the taxpayer:
Cannot be claimed as a dependent by another person;
Cannot be eligible for Medicaid, Medicare,employer-sponsored insurance, or other acceptable types of coverage;
If married, must file a joint tax return; and
Cannot be offered minimum essential coverage under an employer-sponsored plan. An individual is eligible for employer-sponsored minimum essential coverage only if the employee’s share of premiums is“affordable” and the coverage provides “minimum value.”
When determining family size for computing this credit, the family size is the same as the number of individuals for whom the taxpayer is allowed an exemption deduction for the tax year.
The term household income includes the modified adjusted gross income (MAGI) of the taxpayer plus the sum of MAGIs of all individuals who were taken into account when determining the taxpayer’s family size and who were required to file a tax return.
The term MAGI for purposes of this credit means adjusted gross income increased by any foreign earned income exclusion, the excluded portion of Social Security and Railroad Retirement benefits, and tax-exempt interest income.
Insurance through the exchanges will be effective January 1, 2014. Exchanges will be accepting applications in the fall in preparation for the January 2014 effective date.
Congress Puts Lid On Health Flexible Spending Arrangements
As part of the Patient Protection and Affordable Care Act (new health care law), employee contributions to health flexible spending arrangements (health FSA) are now being limited to a maximum pre-tax contribution of $2,500.
Employers are able to establish what is referred to as cafeteria plans fort heir employees. These arrangements allow employees to allocate a portion of their otherwise taxable compensation to nontaxable benefits. Thus, the amounts paid by both the employer and employee to fund the cafeteria plan are excluded from the employee’s gross income.
Cafeteria plans are used to pay a variety of employee expenses, including group-term life insurance on an employee’s life (up to the excludable $50,000amount), employer-provided accident and health plans, accidental death and dismemberment policies, dependent care assistance program, adoption assistance program, contributions to a 401(k) plan, health savings account (HSA)contributions, long- and short-term disability coverage and health flexible spending arrangements (FSAs).
Health FSAs are benefit plans established by employers to reimburse employeesfor health care expenses, such as deductibles and co-payments. They are usually funded by employees through salary reduction agreements (and termed “pre-taxcontributions”), although employers may contribute as well. Qualifying contributions to and withdrawals from FSAs are tax-exempt.
Prior to 2013, an employer could establish its own FSA plan’s contributionlimits. That continued to be true until the beginning of 2013, when Congress,as a way to partially pay for provisions in the new health care law, put a cap of $2,500 on FSA contributions. The $2,500 cap is inflation adjusted for future years.
This new $2,500 FSA limitation does not impact dependent care FSAs, health savings accounts, Archer medical savings accounts, or employee contributions toward health insurance premiums.
The limitation is on an employee-by-employee basis. That is, $2,500 is the maximum amount that an employee may contribute in 2013, regardless of the number of individuals (e.g., spouse or dependents) whose medical expenses maybe reimbursed under the plan. However, if two people are married, and each has the opportunity to participate in a health FSA, whether through the same mployer or through different employers, each may contribute up to $2,500.
The new health care law has many complicated elements. If you have questionsregarding FSAs or other tax provisions in this law, please give this office a call.
Franklin Katz, ATP, PA, PB
Frank's Tax & Business Service
315 E. King St.
Kings Mountain, NC28086
704-739-4039
E-Mail: [email protected])
Web: www.prep.1040.com/frankstax
IRS Circular 230 Notice: Unless expressly stated otherwise inthis
transmission, any tax advice contained herein, forwarded with or attached to
this message was not and is not intended to be used, nor may it be relied
upon or used, by any taxpayer for the purpose of (1) the avoidance of any
tax-related penalties under the Internal Revenue Code or applicable state or
local tax law provisions, or (2) promoting, marketing or recommending to
another party any tax transaction or tax-related matters that may be
addressed herein.
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