Monthly Archives: February 2015

IRS Offers Obamacare Penalty Relief

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

Tax season is always a challenge. This year, things are ramped up a bit, thanks to 2015 being the first tax-filing season where we have to deal with Obamacare on our returns.

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Some taxpayers could, in fact, find themselves owing an unexpected tax bill or getting a smaller refund because of the Affordable Care Act advance premium credit. And some of those folks could even face penalties in connection with the subsidies used to help them pay for their health insurance coverage.

The Internal Revenue Service, however, is giving those folks a break. It is waiving some possible penalty charges.

Subsidy calculation complications

Folks who got the premium tax credit when they purchased health insurance from health care exchanges will have the most work to do this filing season.

That subsidy, a provision of the Affordable Care Act, or ACA, made it possible for them to buy coverage. But if they didn’t accurately estimate their income when the advance tax credit was calculated, they’ll have to pay back any excess tax break they received.

As noted in my Bankrate story about this potential advance premium glitch, filers could be in this situation if their personal circumstances that affect the credit amount changed last year and the changes weren’t reported to the marketplace so that the subsidy could be adjusted.

That’s just one part of the bad news. Many of these folks could be in a jam in coming up with what they owe by April 15, especially if it’s an unexpectedly large amount.

Some taxpayers might, in fact, find that they can’t pay their new, higher tax bills on time. Missing the filing deadline typically means a bigger bill in the form of penalties and interest on the unpaid amount.

And where taxpayers owe a lot due to improperly calculated advance premium credit payments, those filers also could face penalties for failing to pay estimated tax.

Asking for penalty relief

However, given that we’re all coping with the ACA effects on our taxes for the first time this year, the Internal Revenue Service is cutting advance premium credit filers some slack.

The agency is waiving premium tax credit late-payment and estimated tax payment penalties.

To get the penalty relief, you must ask.

When you get a notice from the IRS regarding your late-payment penalty, the IRS says to submit a letter to the address listed in the notice and include the statement “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.”

As long as you file your 2014 tax return by April 15, even if you can’t pay your full tax bill then, you will be granted the penalty relief. Interest, however, will continue to accrue. So make arrangements to pay what you owe as quickly as you can.

If you file your tax return after the April deadline, you must pay your tax bill in full by April 15, 2016, to be eligible for the penalty relief.

Similarly, if your tax bill indicates you’ll likely owe a penalty for not making any or enough estimated tax payment, you need to alert the IRS of the ACA issue. The estimated tax underpayment penalty typically kicks in when a tax bill is $1,000 or more.

Request a waiver of the estimated tax underpayment penalty by filing Form 2210. The IRS says to complete page 1 of the form, check box A in Part II and include the form with your tax return, along with the statement “Received excess advance payment of the premium tax credit.”

Sorry about the extra tax work, but it’s worth the effort to at least avoid the penalty charges.

Premium tax credit only

And one final ACA tax issue note. This penalty relief is only for folks who run into tax bill troubles because of the advance premium tax credit.

The IRS penalty relief does not apply to any bumped up tax bills because folks decided not to buy health insurance at all.

If that’s your case, you’ll still have to figure your shared responsibility payment and pay any added tax. But don’t freak out.

Under the ACA, these underpayments are not subject to either the failure to pay or underpaid estimated tax penalties.

If you have any questions, please give us a call.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Standard Mileage Rates for 2015

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

2015 Mileage Rates & Employer Health Insurance Reimbursements

Rather than keeping track of the actual cost of operating a vehicle, employees and self-employed taxpayers can use a standard mileage rate to compute their deduction related to using a vehicle for business. Likewise, standard mileage rates are available for computing the deduction when a vehicle is used for charitable, medical or moving purposes.

The 2015 standard mileage rates for use of a vehicle are 57.5 cents per mile for business miles (up from 56 cents per mile in 2014), 23 cents per mile for medical or moving purposes, and 14 cents per mile for rendering gratuitous services to a charitable organization.

The business standard mileage rate is considerably higher than the charitable and medical/moving rates because it contains a depreciation component. No depreciation is allowed for the charitable or medical/moving use of a vehicle.

In addition to deductions based on the business standard mileage rate, taxpayers may deduct the parking fees and tolls attributable to the business use of an automobile, as well as interest expense relating to the purchase of the automobile and state and local personal property taxes. However, employees using a vehicle to perform services as an employee cannot deduct interest expense related to that vehicle. Also, if the vehicle is operated less than 100% for business purposes, the taxpayer must allocate the business and non-business portion of the allowable taxes and interest deduction.

Employer Reimbursements of Individual Health Insurance Policies

For plan years beginning after 2013, the Affordable Care Act (ACA) institutes so-called market reform provisions that place a whole host of new restrictions on group health plans. The penalty for violating the market reform restrictions is a punitive $100-per-day, per-employee penalty; or $36,500 per employee, per year. With a limited exception, these new market reform provisions significantly restrict an employer’s ability to reimburse employees for premiums paid on individual health insurance policies, referred to as employer payment arrangements.

Employer payment arrangements

Under employer payment arrangements, the employer reimburses employees for premiums they pay on their individual health insurance policies (or the employer sometimes pays the premium on behalf of the employee). As long as the employer (1) makes the reimbursement under a qualified medical reimbursement plan and (2) verifies that the reimbursement was spent only for insurance coverage, the premium reimbursement is excludable from the employee’s taxable income. These arrangements have long been popular with small employers who want to offer health insurance but are unwilling or unable to purchase group health coverage.

Unfortunately, according to the IRS and Department of Labor (DOL), group health plans can’t be integrated with individual market policies to meet the new market reform provisions. Furthermore, according to the DOL, an employer that reimburses employees for individual policies (on a pretax or after-tax basis) has established a group health plan because the arrangement’s purpose is to provide medical care to its employees. Therefore, reimbursing employees for premiums paid on individual policies violates the market reform provisions, potentially subjecting the employer to a $100 per-day, per-employee ($36,500 per year, per employee) penalty.

Limited exception for one-employee plans. The market reform provisions do not apply to group health plans that have only one participating employee. Therefore, it is still allowable to provide an employer payment arrangement that covers only one employee. Note, however, that nondiscrimination rules require that essentially all full-time employees must participate in the plan

Bottom line. While still technically allowed under the tax code, employer payment arrangements, other than arrangements covering only one employee, are no longer a viable alternative.

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What should you do if you still have an employer payment plan?

First of all, don’t panic. You are not alone. The impact of the market reform provisions to these plans has come as a great surprise to many small business employers, not to mention the tax practitioner community, and we believe there is reasonable cause to keep the penalty from applying for earlier payments. However, it is important to discontinue making payments under the plan and rescind any written documents. Also, any reimbursements made after 2013 should be classified as taxable wages.

Acceptable alternatives

Because of the ACA market reform requirements, employers are basically precluded from subsidizing or reimbursing employees for individual health insurance policies if there is more than one employee participating in the plan. Employers can, however, continue to do any of the following:

· Provide a tax-free fringe benefit by purchasing an ACA-approved employer-sponsored group health plan. Small employers with 50 or fewer employees can provide a group health plan through the Small Business Health Options Plan (SHOP) Marketplace. A cafeteria plan can be set up for pretax funding of the employee portion of the premium.

· Increase the employee’s taxable wages to provide funds that the employee may use to pay for individual insurance policies. However, the employer cannot require that the funds be used to pay for insurance — it must be the employee’s decision to do so (or not). The employer can claim a deduction for the wages paid. The wages are taxable to the employee, but the employee can claim the premiums as an itemized deduction subject to the 10%-of-AGI limit (7.5% if age 65 or older).

If you have any questions, please give us a call.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Beware tax ID thieves

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

By BankRate

We made it through the first week of tax filing season 2015. Unfortunately, during those days some folks’ tax information likely was stolen and used to file fraudulent tax returns.

Tax identity theft is a major and growing problem for taxpayers and the Internal Revenue Service alike.© John T Takai/Shutterstock.com

Taxpayers suffer when they go to file their returns and learn that a crook already has used their Social Security number to claim a fraudulent refund. They must wait for the IRS to determine that they are the legitimate taxpayers before they can get their rightful refund.

On the IRS side, the tax agency must implement more filing system changes to try to catch the crooks. When the tax ID theft does occur, it must spend extra time with the victims to help them get the refunds they, not the criminals, are due.

The IRS has focused more resources in recent years on clearing up tax identity theft cases, and resolution times are improving. But any delay is incredibly frustrating for folks expecting a tax refund.

“Scams can be sophisticated and take many forms. We urge people to protect themselves and use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues,” says IRS Commissioner John Koskinen.

Take steps to stop ID thieves

The commissioner is right. The best way to combat tax identity theft is to avoid becoming a victim in the first place.

With the growth of telephone and email phishing scams, don’t give your personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

Additionally, to protect yourself from tax identity theft, the IRS recommends that you:

  • Don’t carry your Social Security card or any documents that include your Social Security number or Individual Taxpayer Identification Number, or ITIN.
  • Don’t give a business your Social Security number just because they ask. Give it only when required.
  • Check your credit report and Social Security Administration earnings statement annually.
  • Secure personal information in your home, both physically and digitally. This includes adding firewalls and anti-spam and anti-virus software to your personal computer. Update computer security patches and periodically change passwords for your Internet accounts.

Resolving tax ID theft

Despite individual taxpayer efforts, tax identity thieves still manage to get their hands on personal data and use it to file fake returns. When that happens, the IRS issues identity protection personal identification numbers, or IP PINs, to the real filers.

Each IP PIN is a unique, six-digit number that is assigned annually to identity theft victims whose cases are resolved so they can use the PIN to file their federal tax return. To date, the IRS has issued approximately 1.5 million IP PINs.

This year, the IRS is continuing its IP PIN pilot program that allows taxpayers who filed tax returns last year from Florida, Georgia or the District of Columbia to opt in to the IP PIN program.

The IRS also is offering approximately 1.7 million more taxpayers to opt in to the IP PIN program. In these optional IP PIN cases, the IRS has identified indications of identity theft on the taxpayers’ accounts.

Such efforts help, but it’s better for everyone except the crooks if you don’t fall prey to tax ID thieves. So take extra care this filing season and protect your tax data and your refund.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

 

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.