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In 2014, Various Tax Benefits Increase Due to Inflation Adjustments

For tax year 2014, the Internal Revenue Service has announced annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2013-35 provides details about these annual adjustments.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

  • The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
  • The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
  • The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
  • The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).
  • The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
  • Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
  • The annual exclusion for gifts remains at $14,000 for 2014.
  • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.
  • The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.
  • The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

2014 Pension Plan Limitations

The Internal Revenue Service has announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2014.  Some pension limitations such as those governing 401(k) plans and IRAs will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment.  However, other pension plan limitations will increase for 2014.  Highlights include the following:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000, up from $59,000 and $69,000 in 2013.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $96,000 to $116,000, up from $95,000 to $115,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $181,000 and $191,000, up from $178,000 and $188,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013.  For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000.  For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500.

2014 Standard Mileage Rates

Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The business, medical, and moving expense rates decrease one-half cent from the 2013 rates.  The charitable rate is based on statute.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2013-80 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

 

IRS Circular 230 Disclaimer: To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

IRS Warns of Pervasive Telephone Scam

The Internal Revenue Service is warning consumers about a sophisticated phone scam targeting taxpayers, including recent immigrants, throughout the country.

Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

“This scam has hit taxpayers in nearly every state in the country.  We want to educate taxpayers so they can help protect themselves.  Rest assured, we do not and will not ask for credit card numbers over the phone, nor request a pre-paid debit card or wire transfer,” says IRS Acting Commissioner Danny Werfel. “If someone unexpectedly calls claiming to be from the IRS and threatens police arrest, deportation or license revocation if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.” Werfel noted that the first IRS contact with taxpayers on a tax issue is likely to occur via mail

Other characteristics of this scam include:

  • Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
  • Scammers may be able to recite the last four digits of a victim’s Social Security Number.
  • Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
  • Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
  • Victims hear background noise of other calls being conducted to mimic a call site.
  • After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

  • If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.
  • If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.
  • If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov.  Please add “IRS Telephone Scam” to the comments of your complaint.

Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

The IRS encourages taxpayers to be vigilant against phone and email scams that use the IRS as a lure. The IRS does not initiate contact with taxpayers by email to request personal or financial information.  This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail tophishing@irs.gov.

 

IRS Circular 230 Disclaimer: To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Upcoming Tax Deadlines

January

Thu 2 Deposit payroll tax for payments on Dec 25-27 if the semiweekly deposit rule applies.
Mon 6 Deposit payroll tax for payments on Dec 28-31 if the semiweekly deposit rule applies.
Wed 8 Deposit payroll tax for payments on Jan 1-3 if the semiweekly deposit rule applies.
Fri 10 Employers: Employees are required to report to you tips of $20 or more earned during Dec 2013
Fri 10 Deposit payroll tax for payments on Jan 4-7 if the semiweekly deposit rule applies.
Wed 15 Individuals: Pay the final installment of your 2013 estimated tax. Use Form 1040-ES.
Wed 15 Farmers and fishermen: Pay your estimated tax for 2013. Use Form 1040-ES.
Wed 15 Employers: Deposit payroll tax for Dec 2013 if the monthly deposit rule applies.
Wed 15 Deposit payroll tax for payments on Jan 8-10 if the semiweekly deposit rule applies.
Fri 17 Deposit payroll tax for payments on Jan 11-14 if the semiweekly deposit rule applies.
Thu 23 Deposit payroll tax for payments on Jan 15-17 if the semiweekly deposit rule applies.
Fri 24 Deposit payroll tax for payments on Jan 18-21 if the semiweekly deposit rule applies.
Wed 29 Deposit payroll tax for payments on Jan 22-24 if the semiweekly deposit rule applies.
Fri 31 File Form 720 for the fourth quarter of 2013.
Fri 31 Furnish Forms 1098, 1099 and W-2G to recipients for certain payments during 2013. Furnish Form W-2 to employees who worked for you during 2013.
Fri 31 File Form 730 and pay the tax on wagers accepted during Dec 2013.
Fri 31 Deposit any FUTA tax owed through Dec 2013.
Fri 31 File Form 2290 and pay the tax for vehicles first used in Dec 2013.
Fri 31 File Forms 940, 941, 943, 944 and/or 945 if you did not deposit all taxes when due.
Fri 31 File your tax return if you did not pay your last installment of estimated tax by January 15th
Fri 31 Deposit payroll tax for payments on Jan 25-28 if the semiweekly deposit rule applies.

February

Wed 5 Deposit payroll tax for payments on Jan 29-31 if the semiweekly deposit rule applies.
Fri 7 Deposit payroll tax for payments on Feb 1-4 if the semiweekly deposit rule applies.
Mon 10 Employers: Employees are required to report to you tips of $20 or more earned during Jan.
Mon 10 File Forms 940, 941, 943, 944 and/or 945 if you timely deposited all required payments.
Wed 12 Deposit payroll tax for payments on Feb 5-7 if the semiweekly deposit rule applies.
Fri 14 Deposit payroll tax for payments on Feb 8-11 if the semiweekly deposit rule applies.
Tue 18 File a new Form W-4 if you claimed exemption from income tax withholding in 2013.
Tue 18 Furnish Forms 1099-B, 1099-S and certain Forms 1099-MISC to recipients.
Tue 18 Deposit payroll tax for Jan if the monthly deposit rule applies.
Wed 19 Begin withholding on employees who claimed exemption from withholding in 2013 but did not file a W-4 to continue withholding exemption in 2014.
Thu 20 Deposit payroll tax for payments on Feb 12-14 if the semiweekly deposit rule applies.
Fri 21 Deposit payroll tax for payments on Feb 15-18 if the semiweekly deposit rule applies.
Wed 26 Deposit payroll tax for payments on Feb 19-21 if the semiweekly deposit rule applies.
Fri 28 Deposit payroll tax for payments on Feb 22-25 if the semiweekly deposit rule applies.
Fri 28 File Form 1096 with information returns, including Forms 1098, 1099 and W-2G for payments made during 2013.
Fri 28 File Form W-3 with Copy A of all Forms W-2 issued for 2013.
Fri 28 File Form 8027 if you are a large food or beverage establishment.
Fri 28 File Form 730 and pay the tax on wagers accepted during January.
Fri 28 File Form 2290 and pay the tax for vehicles first used in January.

March

Mon 3 Farmers and fishermen: File Form 1040 and pay any tax due. However, you have until Apr 15 to file if you paid your 2013 estimated tax payments by Jan 15, 2014.
Wed 5 Deposit payroll tax for payments on Feb 26-28 if the semiweekly deposit rule applies.
Fri 7 Deposit payroll tax for payments on Mar 1-4 if the semiweekly deposit rule applies.
Mon 10 Employers: Employees are required to report to you tips of $20 or more earned during February.
Wed 12 Deposit payroll tax for payments on Mar 5-7 if the semiweekly deposit rule applies.
Fri 14 Deposit payroll tax for payments on Mar 8-11 if the semiweekly deposit rule applies.
Mon 17 Corporations: File Form 1120 for calendar year and pay any tax due. For automatic 6-month extension, file Form 7004 and deposit estimated tax.
Mon 17 Employers: Deposit payroll tax for Feb. if the monthly deposit rule applies.
Mon 17 S Corporations: File Form 1120S for calendar year and pay any tax due. Furnish a copy of Sch. K-1 to each shareholder. File Form 2553 to elect S Corporation status beginning with calendar year 2014.
Mon 17 Electing Large Partnerships: Furnish Sch. K-1 (Form 1065-B) to each partner.
Wed 19 Deposit payroll tax for payments on Mar 12-14 if the semiweekly deposit rule applies.
Fri 21 Deposit payroll tax for payments on Mar 15-18 if the semiweekly deposit rule applies.
Wed 26 Deposit payroll tax for payments on Mar 19-21 if the semiweekly deposit rule applies.
Fri 28 Deposit payroll tax for payments on Mar 22-25 if the semiweekly deposit rule applies.
Mon 31 File Form 2290 and pay the tax for vehicles first used in February.
Mon 31 File Form 730 and pay the tax on wagers accepted during February.
Mon 31 Electronically file Forms W-2, W-2G, 1098, 1099, and 8027.

 

 

IRS Circular 230 Disclaimer: To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Treasury and IRS Announce That All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

The ruling implements federal tax aspects of the June 26 Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act.

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status.

Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012. Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009 and earlier.

Additionally, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.

 

Guidance for Employers and Employees

On Sept. 23, 2013 IRS issued Notice 2013-61 providing guidance for employers and employees to claim refunds or adjust overpayments of FICA taxes and employment taxes with respect to certain benefits and remunerations provided to same-sex spouses.

The Premium Tax Credit

Basic Information

Starting in 2014, if you get your health insurance coverage through the Health Insurance Marketplace, you may be eligible for the Premium Tax Credit. This tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. The open enrollment period to purchase health insurance coverage for 2014 through the Marketplace runs from Oct. 1, 2013, through March 31, 2014.

The Department of Health and Human Services administers the requirements for the Marketplace and the health plans they offer. For more information about your coverage options, financial assistance and the Marketplace, visit HealthCare.gov.

Eligibility

In general, you may be eligible for the credit if you meet all of the following:

  • buy health insurance through the Marketplace;
  • are ineligible for coverage through an employer or government plan;
  • are within certain income limits;
  • file a joint return, if married; and
  • cannot be claimed as a dependent by another person.

If you are eligible for the credit, you can choose to:

  • Get It Now: have some or all of the estimated credit paid in advance directly to your insurance company to lower what you pay out-of-pocket for your monthly premiums during 2014; or
  • Get It Later: wait to get all of the credit when you file your 2014 tax return in 2015.

Getting the Credit

To qualify for the credit, you must get insurance through the Marketplace.

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.

You will then decide whether you want to have all, some or none of your estimated credit paid in advance directly to your insurance company.

Change in Circumstances

Report income and family size changes to the Marketplace throughout the year. Reporting changes will help make sure you get the proper type and amount of financial assistance and will help you avoid getting too much or too little in advance. Receiving too much or too little in advance can affect your refund or balance due when you file your 2014 tax return in 2015.

For example, if you do not report income or family size changes to the Marketplace when they happen in 2014, the advance payments may not match your actual qualified credit amount on your federal tax return that you will file in 2015. This might result in a smaller refund or balance due.

Claiming the Credit on Your Federal Tax Return

For any tax year, if you receive advance credit payments in any amount or if you plan to claim the premium tax credit, you must file a federal income tax return for that year.

If you choose to get it now: When you file your 2014 tax return in 2015, you will subtract the total advance payments you received during the year from the amount of the Premium Tax Credit calculated on your tax return. If the Premium Tax Credit computed on the return is more than the advance payments made on your behalf during the year, the difference will increase your refund or lower the amount of tax you owe. If the advance credit payments are more than the Premium Tax Credit, the difference will increase the amount you owe and result in either a smaller refund or a balance due.

If you choose to get it later: You will claim the full amount of the Premium Tax Credit when you file your 2014 tax return in 2015. This will either increase your refund or lower your balance due.

Questions and Answers on the Individual Shared Responsibility Provision

Basic Information

1. What is the individual shared responsibility provision?

Under the Affordable Care Act, the federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.

2. Who is subject to the individual shared responsibility provision?

The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

3. When does the individual shared responsibility provision go into effect?

The provision goes into effect on Jan. 1, 2014. It applies to each month in the calendar year. The amount of any payment owed takes into account the number of months in a given year an individual is without minimal essential coverage or an exemption.

4.  Is transition relief available in certain circumstances?

Yes. Notice 2013-42, published on June 26, 2013, provides transition relief from the shared responsibility payment for individuals who are eligible to enroll in eligible employer-sponsored health plans with a plan year other than a calendar year (non-calendar year plans) if the plan year begins in 2013 and ends in 2014 (2013-2014 plan year). The transition relief applies to an employee, or an individual having a relationship to the employee, who is eligible to enroll in a non-calendar year eligible employer-sponsored plan with a 2013-2014 plan year. The transition relief begins in January 2014 and continues through the month in which the 2013-2014 plan year ends.

5. What counts as minimum essential coverage?

Minimum essential coverage includes the following:

  • Employer-sponsored coverage (including COBRA coverage and retiree coverage)
  • Coverage purchased in the individual market, including a qualified health plan offered by the Health Insurance Marketplace (also known as an Affordable Insurance Exchange)
  • Medicare Part A coverage and Medicare Advantage plans
  • Most Medicaid coverage
  • Children’s Health Insurance Program (CHIP) coverage
  • Certain types of veterans health coverage administered by the Veterans Administration
  • TRICARE
  • Coverage provided to Peace Corps volunteers
  • Coverage under the Nonappropriated Fund Health Benefit Program
  • Refugee Medical Assistance supported by the Administration for Children and Families
  • Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as minimum essential coverage)
  • State high risk pools for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these program may apply to HHS to be recognized as minimum essential coverage)

Minimum essential coverage does not include coverage providing only limited benefits, such as coverage only for vision care or dental care, and Medicaid covering only certain benefits such as family planning, workers’ compensation, or disability policies.

6. What are the statutory exemptions from the requirement to obtain minimum essential coverage?

  1. Religious conscience. You are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.
  2. Health care sharing ministry. You are a member of a recognized health care sharing ministry.
  3. Indian tribes. You are a member of a federally recognized Indian tribe.
  4. No filing requirement. Your income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on your filing status, age and types and amounts of income.
  5. Short coverage gap. You went without coverage for less than three consecutive months during the year. For more information, see question 22.
  6. Hardship. The Health Insurance Marketplace, also known as the Affordable Insurance Exchange, has certified that you have suffered a hardship that makes you unable to obtain coverage.
  7. Unaffordable coverage options. You can’t afford coverage because the minimum amount you must pay for the premiums is more than eight percent of your household income.
  8. Incarceration. You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against you.
  9. Not lawfully present. You are not a U.S. citizen, a U.S. national or an alien lawfully present in the U.S.

7. What do I need to do if I want to be sure I have minimum essential coverage or an exemption for 2014?

Most individuals in the United States have health coverage today that will count as minimum essential coverage and will not need to do anything more than continue the coverage that they have. For those who do not have coverage, who anticipate discontinuing the coverage they have currently, or who want to explore whether more affordable options are available, the Health Insurance Marketplace will open for every state and the District of Columbia in October of 2013. The Health Insurance Marketplace will help qualified individuals find minimum essential coverage that fits their budget and potentially financial assistance to help with the costs of coverage beginning in 2014. The Health Insurance Marketplace will also be able to assess whether applicants are eligible for Medicaid or the Children’s Health Insurance Program (CHIP). For those who will become eligible for Medicare during 2013, enrolling for Medicare will also ensure that you have minimum essential coverage for 2014.

For those seeking an exemption, the Health Insurance Marketplace will be able to provide certificates of exemption for many of the exemption categories. HHS has issued final regulations on how the Health Insurance Marketplace will go about granting these exemptions. Individuals will also be able to claim certain exemptions for 2014 when they file their federal income tax returns in 2015. Individuals who are not required to file a federal income tax return are automatically exempt and do not need to take any further action to secure an exemption. See question 21 for further information on exemptions.

8. Is more detailed information available about the individual shared responsibility provision?

Yes. The Treasury Department and the IRS have issued final regulations on the new individual shared responsibility provision.

Who is Affected?

9. Are children subject to the individual shared responsibility provision?

Yes. Each child must have minimum essential coverage or qualify for an exemption for each month in the calendar year. Otherwise, the adult or married couple who can claim the child as a dependent for federal income tax purposes will owe a payment.

10. Are senior citizens subject to the individual shared responsibility provision?

Yes. Senior citizens must have minimum essential coverage or qualify for an exemption for each month in a calendar year. Senior citizens will have minimum essential coverage for every month they are enrolled in Medicare.

11. Are all individuals living in the United States subject to the individual shared responsibility provision?

All U.S. citizens are subject to the individual shared responsibility provision as are all permanent residents and all foreign nationals who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes. Foreign nationals who live in the United States for a short enough period that they do not become resident aliens for federal income tax purposes are not subject to the individual shared responsibility payment even though they may have to file a U.S. income tax return. The IRS has more information available on when a foreign national becomes a resident alien for federal income tax purposes.

12. Are US citizens living abroad subject to the individual shared responsibility provision?

Yes. However, U.S. citizens who live abroad for a calendar year (or at least 330 days within a 12 month period) are treated as having minimum essential coverage for the year (or period). These are individuals who qualify for an exclusion from income under section 911 of the Code.

13. Are residents of the territories subject to the individual shared responsibility provision?

All bona fide residents of the United States territories are treated by law as having minimum essential coverage. They are not required to take any action to comply with the individual shared responsibility provision.

Minimum Essential Coverage

14. If I receive my coverage from my spouse’s employer, will I have minimum essential coverage?

Yes. Employer-sponsored coverage is generally minimum essential coverage. (See question 5 for information on specialized types of coverage that are not minimum essential coverage.) If an employee enrolls in employer-sponsored coverage for himself and his family, the employee and all of the covered family members have minimum essential coverage.

15. Do my spouse and dependent children have to be covered under the same policy or plan that covers me?

No. You, your spouse and your dependent children do not have to be covered under the same policy or plan. However, you, your spouse and each dependent child for whom you may claim a personal exemption on your federal income tax return must have minimum essential coverage or qualify for an exemption, or you will owe a payment when you file.

16. My employer tells me that our company’s health plan is “grandfathered.” Does my employer’s plan provide minimum essential coverage?

Yes. Grandfathered group health plans provide minimum essential coverage.

17. I am a retiree, and I am too young to be eligible for Medicare. I receive my health coverage through a retiree plan made available by my former employer. Is the retiree plan minimum essential coverage?

Yes. Retiree health plans are generally minimum essential coverage.

18. I work for a local government that provides me with health coverage. Is my coverage minimum essential coverage?

Yes. Employer-sponsored coverage is minimum essential coverage regardless of whether the employer is a governmental, nonprofit or for-profit entity.

19. Do I have to be covered for an entire calendar month in order to get credit for having minimum essential coverage for that month?

No. You will be treated as having minimum essential coverage for a month as long as you have coverage for at least one day during that month.

20. If I change health coverage during the year and end up with a gap when I am not covered, will I owe a payment?

Individuals are treated as having minimum essential coverage for a calendar month if they have coverage for at least one day during that month. Additionally, as long as the gap in coverage is less than three months, you may qualify for an exemption and not owe a payment. See question 22 for more information on the exemption for short coverage gaps.

Exemptions

21. If I think I qualify for an exemption, how do I claim it?

It depends upon which exemption it is.

  • The religious conscience exemption and most hardship exemptions are available only by going to the Health Insurance Marketplace and applying for an exemption certificate. Information on final rules for obtaining these exemptions is available.
  • The exemptions for members of federally recognized Indian tribes, members of health care sharing ministries and individuals who are incarcerated are available either by going to a Marketplace or Exchange and applying for an exemption certificate or by claiming the exemption as part of filing a federal income tax return.
  • The exemptions for unaffordable coverage, short coverage gaps, certain hardships and individuals who are not lawfully present in the United States can be claimed only as part of filing a federal income tax return. The exemption for those under the federal income tax return filing threshold is available automatically. No special action is needed.

22. What qualifies as a short coverage gap?

In general, a gap in coverage that lasts less than three months qualifies as a short coverage gap. If an individual has more than one short coverage gaps during a year, the short coverage gap exemption only applies to the first gap.

23. If my income is so low that I am not required to file a federal income tax return, do I need to do anything special to claim an exemption from the individual shared responsibility provision?

No. Individuals who are not required to file a tax return for a year are automatically exempt from owing a shared responsibility payment for that year and do not need to take any further action to secure an exemption. Individuals who are not required to file a tax return for a year, but file anyway, will be able to claim the exemption on their tax return.

Reporting Coverage or Exemptions or Making Payments

24. Will I have to do something on my federal income tax return to show that I had coverage or an exemption?

The individual shared responsibility provision goes into effect in 2014. You will not have to account for coverage or exemptions or to make any payments until you file your 2014 federal income tax return in 2015. Information will be made available later about how the income tax return will take account of coverage and exemptions. Insurers will be required to provide everyone that they cover each year with information that will help them demonstrate they had coverage beginning with the 2015 tax year.

25. What happens if I do not have minimum essential coverage or an exemption, and I cannot afford to make the payment with my tax return?

The IRS routinely works with taxpayers who owe amounts they cannot afford to pay. The law prohibits the IRS from using liens or levies to collect any payment you owe related to the individual responsibility provision, if you, your spouse or a dependent included on your tax return does not have minimum essential coverage. However, if you owe a shared responsibility payment, the IRS may offset that liability against any tax refund you may be due.

Give Withholding and Payments a Check-up to Avoid a Tax Surprise

Some people are surprised to learn they’re due a large federal income tax refund when they file their taxes. Others are surprised that they owe more taxes than they expected. When this happens, it’s a good idea to check your federal tax withholding or payments. Doing so now can help avoid a tax surprise when you file your 2013 tax return next year.

Here are some tips to help you bring the tax you pay during the year closer to what you’ll actually owe.

Wages and Income Tax Withholding

  • New Job.   Your employer will ask you to complete a Form W-4, Employee’s Withholding Allowance Certificate. Complete it accurately to figure the amount of federal income tax to withhold from your paychecks.
  • Life Event.  A change in marital status, birth of a child, getting or losing a job, or purchasing a home, for example, can all change the amount of taxes you owe. We can typically submit a new Form W–4 anytime.
  • IRS Withholding Calculator. This handy online tool will help you figure the correct amount of tax to withhold based on your situation.

Self-Employment and Other Income

  • Estimated tax.  This is how you pay tax on income that’s not subject to withholding. Examples include income from self-employment, interest, dividends, alimony, rent and gains from the sale of assets. You also may need to pay estimated tax if the amount of income tax withheld from your wages, pension or other income is not enough. If you expect to owe a thousand dollars or more in taxes and meet other conditions, you may need to make estimated tax payments.
  • Change in Estimated Tax.  After you make an estimated tax payment, some life events or financial changes may affect your future payments. Changes in your income, adjustments, deductions, credits or exemptions may make it necessary for you to re-figure your estimated tax.
  • Additional Medicare Tax.  A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status.
  • Net Investment Income Tax.  A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts.

 

IRS Circular 230 Disclaimer: To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Upcoming Tax Deadlines

October

Wed 2 Deposit payroll tax for payments on Sep 25-27 if the semiweekly rule applies.
Fri 4 Deposit payroll tax for payments on Sep 28-Oct 1 if the semiweekly deposit rule applies.
Wed 9 Deposit payroll tax for payments on Oct 2-4 if the semiweekly deposit rule applies.
Thu 10 Employers: Employees are required to report to you tips of $20 or more earned during September.
Fri 11 Deposit payroll tax for payments on Oct 5-8 if the semiweekly deposit rule applies.
Tue 15 Deposit payroll tax for Sep if the monthly deposit rule applies.
Tue 15 Individuals: File Form 1040, 1040A, or 1040EZ if you timely requested a 6-month extension.
Tue 15 Electing Large Partnerships: File Form 1065 if you timely requested a 6-month extension.
Tue 15 File Form 5500 if you timely requested an extension on Form 5558.
Thu 17 Deposit payroll tax for payments on Oct 9-11 if the semiweekly deposit rule applies.
Fri 18 Deposit payroll tax for payments on Oct 12-15 if the semiweekly deposit rule applies.
Wed 23 Deposit payroll tax for payments on Oct 16-18 if the semiweekly deposit rule applies.
Fri 25 Deposit payroll tax for payments on Oct 19-22 if the semiweekly deposit rule applies.
Wed 30 Deposit payroll tax for payments on Oct 23-25 if the semiweekly deposit rule applies.
Thu 31 File Form 720 for the third quarter.
Thu 31 File Form 730 and pay tax on wagers accepted during September.
Thu 31 File Form 2290 and pay the tax for vehicles first used during September.
Thu 31 File Form 941 for the third quarter.
Thu 31 Deposit FUTA owed through Sep if more than $500.

 

November

Fri 1 Deposit payroll tax for payments on Oct 26-29 if the semiweekly deposit rule applies.
Wed 6 Deposit payroll tax for payments on Oct 30 – Nov 1 if the semiweekly deposit rule applies.
Fri 8 Deposit payroll tax for payments on Nov 2-5 if the semiweekly deposit rule applies.
Tue 12 File Form 941 for the third quarter if you timely deposited all required payments.
Tue 12 Employers: Employees are required to report to you tips of $20 or more earned during October.
Thu 14 Deposit payroll tax for payments on Nov 6-8 if the semiweekly deposit rule applies.
Fri 15 Deposit payroll tax for payments on Nov 9-12 if the semiweekly deposit rule applies.
Fri 15 Deposit payroll tax for Oct if the monthly rule applies.
Wed 20 Deposit payroll tax for payments on Nov 13-15 if the semiweekly deposit rule applies.
Fri 22 Deposit payroll tax for payments on Nov 16-19 if the semiweekly deposit rule applies.
Wed 27 Deposit payroll tax for payments on Nov 20-22 if the semiweekly deposit rule applies.

 

December

Mon 2 Deposit payroll tax for payments on Nov 23-26 if the semiweekly deposit rule applies.
Mon 2 File Form 730 and pay tax on wagers accepted during October.
Mon 2 File Form 2290 and pay the tax for vehicles first used during October.
Wed 4 Deposit payroll tax for payments on Nov 27-29 if the semiweekly deposit rule applies.
Fri 6 Deposit payroll tax for payments on Nov 30 – Dec 3 if the semiweekly deposit rule applies.
Tue 10 Employers: Employees are required to report to you tips of $20 or more earned during November.
Wed 11 Deposit payroll tax for payments on Dec 4-6 if the semiweekly deposit rule applies.
Fri 13 Deposit payroll tax for payments on Dec 7-10 if the semiweekly deposit rule applies.
Mon 16 Corporations: Deposit the fourth installment of your 2013 estimated tax.
Mon 16 Deposit payroll tax for Nov if the monthly deposit rule applies.
Wed 18 Deposit payroll tax for payments on Dec 11-13 if the semiweekly deposit rule applies.
Fri 20 Deposit payroll tax for payments on Dec 14-17 if the semiweekly deposit rule applies.
Thu 26 Deposit payroll tax for payments on Dec 18-20 if the semiweekly deposit rule applies.
Mon 30 Deposit payroll tax for payments on Dec 21-24 if the semiweekly deposit rule applies.
Tue 31 File Form 730 and pay tax on wagers accepted during November.
Tue 31 File Form 2290 and pay the tax for vehicles first used during November.

IRS Circular 230 Disclaimer: To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.