Health care and Taxpayer Refunds

[Zee]

In case anyone missed it, here's a link (I hope it works) to an Associated Press article on how the ACA can affect anticipated taxpayer refunds and the confusion it may create with taxpayers.

http://hosted.ap.org/dynamic/stories/U/US_HEALTH_OVERHAUL_TAX_REFUNDS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2014-08-25-04-50-06

[Golden Rocket]

Waiting to Find Out

Waiting to find out the mechanics of this credit on the 1040. I expect to be told later in seminars this fall.

I suspect:

1) People having been using the credit thus far to reduce the monthly payment for health insurance.
The amount of credit actually taken may appear in the "Other Taxes" Section after the taxes and
credits have been calculated.
2) The actual credit is then recalculated based on information on the current year tax return. The dollar
amount appears in the "Payments" section.

The refund may be affected by the credit either positively or negatively.

The above scenario is only what I think may be true at this time. If others have better visibility, please
respond.

[AZUKHiker]

Draft ACA Forms Available

Here is a link to the draft 2014 form 1040

http://www.irs.gov/pub/irs-dft/f1040--dft.pdf

Line 46 is for the excess credit and line 69 is for any credit claimed. All come from new form 8962.

Here is the link to the draft 2014 form 8962

http://www.irs.gov/pub/irs-dft/f8962--dft.pdf

This coming tax season is going to be fun!!! ;-)

[FEDUKE404]

Related questions about Form 8962

I'm already considering early retirement due to the likes of Form 8962 ( http://www.irs.gov/pub/irs-dft/f8962--dft.pdf ).

What is a reasonable approach for a tax professional to take, at this time, to prepare for this upcoming tsunami? Can we really know now that much about potential impact upon clients' tax returns absent seeing some current employee withholding statements?

As for the credit, are many folks really availing themselves of the "advance ACA credit" ? We all know that it is possible for projected EITC amounts to show up "in advance" in an employee's pay check, but it has been my experience that those who actually go this route are few and far between.

Relevant disclaimer: I prepare very few EITC returns and the large amount of my clients "make too much money" in ways that impact all kinds of potential tax credits.

Any insight will be welcomed!

FE

[WhiteOleander]

It is my understanding that anyone that has health ins will get a form 1095??? (or something like that) that will show the info necessary for the tax return. Similar to 1098s. I think the biggest issue will be the people that do not have any insurance. That will be almost all the lower income people because they literally cannot afford that insurance. I am not sure how that will come into play. In theory, they will pay a penalty.

[Bees Knees]

As for the credit, are many folks really availing themselves of the "advance ACA credit" ?

Yes, everyone who signs up for health insurance on an exchange and qualifies for the premium tax credit gets it in the form of reduced premiums that they have to pay. Most taxpayers won't even know the amount of the "advanced credit" as all they know is the premium they have to pay.

Thus, unless the insurance company sends them this new form that tells them how much credit they received during the year (something that is not required of insurance companies for the 2014 tax year), your clients won't have a clue as to how much of an advanced credit they received.

If you prepare the return assuming they didn't get the advanced credit because your client insists he/she didn't get a credit, IRS will be sending your client an adjustment letter after the return is filed next summer.

Bottom line, we have to ask every client who got insurance through the exchange to tell us how much of a credit they received, and if they don't know, make them call their insurance provider to tell them the dollar amount.

Also, since the advanced credit is based on the 2013 tax return but the actual credit allowed is based on the 2014 tax return, very few of these things will actually be the same.

[Golden Rocket]

Tied to the Track

Thus, unless the insurance company sends them this new form that tells them how much credit they received during the year (something that is not required of insurance companies for the 2014 tax year), your clients won't have a clue as to how much of an advanced credit they received.

If you prepare the return assuming they didn't get the advanced credit because your client insists he/she didn't get a credit, IRS will be sending your client an adjustment letter after the return is filed next summer.

Also, since the advanced credit is based on the 2013 tax return but the actual credit allowed is based on the 2014 tax return, very few of these things will actually be the same.

The train is coming and we're tied to the track. Thanks for making our day Bees, it's even worse than we thought.

We might even start a new thread on alternatives to finding out advance credit taken. It's a cinch that almost none of our clients will have this number if they can't get it from the insurance company. Maybe the insurance companies will have the foresight to send out the form anyway rather than face the deluge of phone calls. Is it possible to reconstruct the number from their 2013 income? or are we giving the ACA website too much credit.

[David1980]

I don't really expect many of my clients will have purchased insurance on the exchange. That is, they'll either have insurance through their employer, had income too low for the exchange and ended up with medicaid, or had their head stuck in the sand and thought that Obamacare had been repealed or delayed and not purchased insurance at all.

It wouldn't be hard to work out what percentage actually signed up on the exchange. They were promoting what, about 7.5 million that signed up on the exchange? And there's roughly 130 or 140 million returns filed per year? A little more than 5 or 6% of returns could potentially be affected? Assuming that everyone who purchased on the exchange qualified for some kind of subsidy (which probably isn't far off, I'd wager.)

[Y2KEA]

The 8962 looks like something from Dante's Inferno.
Will your client know how much they actually paid for HI? Probably not.
Will they know what their subsidy was? Of course not.
Unless they are covered by Medicare or have a DD code on their W-2, we will have extra work on our hands.
The .gov will need to provide this info or tax returns will be...ummm...inaccurate.
I warned these extra work clients about the additional charge they will pay in 2014.
They were not happy. And these are the taxpayers who can least afford to pay the increased fees.
Get ready for next year & be sure to remind your clients to express their experienced additional costs to their favorite elected officials.

[DonPriebe]

No more advance EITC

... We all know that it is possible for projected EITC amounts to show up "in advance" in an employee's pay check, but it has been my experience that those who actually go this route are few and far between. ...

The Advance EITC option was discontinued several years ago.

[FEDUKE404]

Loss of EITC credit on W2

The Advance EITC option was discontinued several years ago.

Sounds like a "Breaking News!" alert. Good riddance!

Of course, going from perhaps two of those a year to zero a year would hardly have caught my attention. My days (daze?) with storefront tax preparation are behind me, so EITC and related issues now have minimal impact on my overall client base. It is important for me to keep my blood pressure under control and my sanity in at least a somewhat workable range.

FE

[TaxGuyBill]

Thus, unless the insurance company sends them this new form that tells them how much credit they received during the year (something that is not required of insurance companies for the 2014 tax year), your clients won't have a clue as to how much of an advanced credit they received.

As far as I know, the "marketplace" IS required to send a 1095-A that shows the amount of the advance credit for the 2014 tax year.

The 1095-B and 1095-C might not be required for the insurance companies until future years.

http://www.irs.gov/pub/irs-dft/f1095a--dft.pdf

http://www.irs.gov/pub/irs-dft/f1095b--dft.pdf

http://www.irs.gov/pub/irs-dft/f1095c--dft.pdf

[Bees Knees]

As far as I know, the "marketplace" IS required to send a 1095-A that shows the amount of the advance credit for the 2014 tax year.

I don't know of any rule that requires the "marketplace" to do any reporting. IRC §6055 requires the health insurance company to do the reporting regarding the amount of the premium tax credit that applies to the taxpayer through the marketplace, and IRC §6056 requires applicable large employers to do the reporting regarding whether an employee is covered by an employer sponsored health plan. Both of those reporting requirements were delayed until 2015 by Notice 2013-45, although that notice strongly requests that insurance companies and employers voluntarily report 2014 information as well.

I am not aware of any reporting requirement by the "marketplace." Can you provide a code citation that requires the marketplace to also report such information?

[taxmandan]

TheIRS instructions say Form 1095A is to be sent to the taxpayer by January 31st. So filings will be delayed for more people. Everyone in the exchanges paid reduced premiums because of the advanced credit which will be reconciled on their 2014 tax returns based on actual income that year. Many people who will not get big refunds as in past years and some will have to repay the credit for thousands of dollars because of big changes in income between 2013 and 2014 that caused them not to be eligible for a credit. It'll be ugly.

[TaxGuyBill]

I am not aware of any reporting requirement by the "marketplace." Can you provide a code citation that requires the marketplace to also report such information?

§36B(f)(3) and §1.36B-5

http://www.law.cornell.edu/uscode/text/26/36B#f_3

http://www.law.cornell.edu/cfr/text/26/1.36B-5