Healthcare

Premium Tax Credit: 3 ways to reduce the chance of owing taxes

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 Taxpayer Advocate Service

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This past filing season saw some people owing money at tax time that they didn’t expect. Why? Because they didn’t provide an accurate income estimate to the Marketplace when enrolling for health insurance or they forgot to report changes to the Marketplace immediately. Don’t let that be you next year!

Here are three ways to help lessen your chances of owing money at tax time, if you chose to have advance payments of the Premium Tax Credit paid to your insurer.

1) Make sure you include ALL your income in your estimate.

Remember that it’s more than just your paycheck that needs to be included. Pay special attention to these items:

  • Unemployment compensation
  • All household members’ income (not just yours)
  • Additional types of income, including interest income, capital gains, cash support, and alimony.
  • Most withdrawals and distributions from traditional IRAs and 401ks. (See IRS Publication 590-B Distributions from Individual Retirement Arrangements (IRAs) for more information.)

Some unexpected balances were due to a lump sum payment received or withdrawn during the year that was not included in the initial income estimate. Lump sum payments can be issued through retirement account distributions, Social Security or disability payments and awards from law suits. These amounts are reported to you on a IRS Form 1099.

Healthcare.gov’s “Get Answers” has many articles to help you estimate your income more accurately.

2) Consider having a lower amount of the estimated Premium Tax Credit paid directly to the insurer where possible.

When possible, opt to have less than 100% of the calculated credit used as advance payments. If you are eligible for a larger credit, you will receive the difference when you file your tax return. So if you can afford to take less, even a little bit, doing this will give you at least some cushion of safety should the unexpected happen or you miscalculated your income.

3) Report all income and life changes to the Marketplace immediately.

Don’t wait to report changes. The longer you wait to report changes to the Marketplace the larger the difference between the advance payments and the final allowable credit will be. Changes can also affect your insurance coverage.

Don’t know which changes to report? Healthcare.gov has information on which changes should be reported. Or see IRS Publication 5152, Report changes to the Marketplace as they happen (also available in Spanish).

Another handy tool is our Premium Tax Credit Change Estimator. The Premium Tax Credit Change Estimator can help you estimate how much your premium tax credit will change if your income or family size changes during the year. It won’t report those changes to the Marketplace, you must do that yourself, but it will give you a better idea of how those life changes affect the total amount of your premium tax credit.

Of course you never know what’s going to happen in the coming year. That’s why it’s so important to update your Marketplace information all year round whenever you have income or household changes that could affect your coverageand your taxes.

If you should you find yourself owing money to the IRS at tax time, but can’t afford to pay it all at once, there are options. See I can’t pay my taxes for more information.

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.

2015 HSA amounts

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 HSA amounts HSA-piggy_360_360_95

Health Savings Accounts (HSAs) were created as a tax-favored framework to provide health care benefits mainly for small business owners, the self-employed, and employees of small to medium-size companies who do not have access to health insurance.

The tax benefits of HSAs are quite substantial. Eligible individuals can make tax-deductible (as an adjustment to AGI) contributions into HSA accounts. The funds in the account may be invested (somewhat like an IRA), so there is an opportunity for growth. The earnings inside the HSA are free from federal income tax, and funds withdrawn to pay eligible health care costs are tax-free.

An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the participant who, for the months for which contributions are made to an HSA, is covered under a high-deductible health plan. Consequently, an HSA is not insurance; it is an account, which must be opened with a bank, brokerage firm, or other provider (i.e., insurance company). It is therefore different from a Flexible Spending Account in that it involves an outside provider serving as a custodian or trustee.

The recently released 2015 inflation-adjusted contribution limit for individual self-only coverage under a high-deductible plan is $3,350, while the comparable amount for family coverage is $6,650. For 2015, a high-deductible health plan is defined as a health plan with an annual deductible that is not less than $1,300 for self-only coverage and $2,600 for family coverage, and the annual out-of-pocket expenses (including deductibles and copayments, but not premiums) must not exceed $6,450 for self-only coverage or $12,900 for family coverage.

 

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.

Required Health Insurance for 2014

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!

What you need to know about required health insurance coverage for 2014.

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Beginning in 2014, the individual shared responsibility provision of the Affordable Care Act (ACA) requires you and each member of your family to have qualifying health insurance (called minimum essential coverage), have an exemption, or pay a shared responsibility penalty with your 2014 individual income tax return, Form 1040. Many people already have minimum essential coverage and don’t need to do anything more than maintain that coverage.

Do I have minimum essential coverage? You have minimum essential coverage if you have employer-sponsored coverage, coverage obtained through a Health Insurance Marketplace, or coverage through a government-sponsored program. Coverage under certain other plans will qualify as well. You must maintain this coverage for each month of the calendar year.

Am I eligible for an exemption? You may be exempt from the requirement to maintain minimum essential coverage if you’re a member of certain religious sects, a federally recognized Indian tribe, or a health care sharing ministry. You may also be eligible if you are suffering a hardship, meet certain income criteria, or are uninsured for less than three consecutive months of the year.

Will I have to pay a penalty? If you or any of your dependents don’t have minimum essential coverage or an exemption, you will have to pay an individual shared responsibility penalty with your tax return.

For 2014, the annual shared responsibility penalty is the greater of:

 

  • 1% of your household income that is above your tax return filing threshold, or

 

 

  • Your family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285 for 2014.

 

However, the maximum amount cannot be more than the cost of the national average premium for a bronze level health plan available through the Marketplace in 2014.

 

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.