Hypothetical ACA problem

[Black Bart]

Single client (employer does not offer group plan) will be coming in without insurance and having never contacted Marketplace, local agent, or anybody else. I'm pretty sure I can get him off with "coverage unaffordable" exemption because 8% of HH income will be be less than any plan's cost. Problem: where can I find a chart (or whatever else) that lists the lowest-cost, self-only bronze plan around? Since he never applied to Healthcare.gov, there won't be anything written anywhere for quotes (much less the Premium Assistance Credits to reduce it). Have him call local agent and get a quote, then write up affidavit for him to sign?
Pray? Suggestions?

8965 instructions state two options for affordability exemption - 1. claim on tax return 2. apply for exemption at marketplace online (probably take months). Now I suppose we just plop an "A" on part 3 of 8965 and declare him exempt. IRS seems eerily absent from the background of these forms; my software has entries for penalty calculations but nothing for exemptions so nothing's going in to back up the "A". Raises questions (to me) of "Is anybody minding the store at IRS?" How can they possibly check the millions of these things (guess it's all an honor system). Too, suppose I decided he was not exempt and owes money based on what we could round up and another preparer later tells him he was exempt, then I'd start wishing I hadn't dropped my E&O.

It all seems very strange to me and I don't think they intend to check any of this stuff (figures grabbed from the air so-to-speak) anymore than they ever have followed up on EIC abuse.

[David1980]

How can they possibly check the millions of these things (guess it's all an honor system).

In theory, at least some could be caught with the subsidy calculation. Calculate the maximum annual contribution based on household income (8962 8a) and if less than 8% issue an IRS letter.

I doubt they'll actually do that, probably, especially this first year, it'll be an honor system thing.

Figuring out if someone qualifies for an exemption was discussed a little more in depth here: http://forum.thetaxbook.com/showthre...GI-Marketplace - but there's nothing really answering the question as far as how to determine if they qualify / where to get the 2014 numbers.

[commonstalk]

This may help

http://www.valuepenguin.com/ppaca/exchanges

[New York Enrolled Agent]

Single client (employer does not offer group plan) will be coming in without insurance and having never contacted Marketplace, local agent, or anybody else. I'm pretty sure I can get him off with "coverage unaffordable" exemption because 8% of HH income will be be less than any plan's cost. Problem: where can I find a chart (or whatever else) that lists the lowest-cost, self-only bronze plan around?

8965 instructions state two options for affordability exemption - 1. claim on tax return 2. apply for exemption at marketplace online (probably take months). Now I suppose we just plop an "A" on part 3 of 8965 and declare him exempt. IRS seems eerily absent from the background of these forms; my software has entries for penalty calculations but nothing for exemptions so nothing's going in to back up the "A". Raises questions (to me) of "Is anybody minding the store at IRS?" How can they possibly check the millions of these things (guess it's all an honor system).

Bart

1. You don't need to check any bronze plan figures. Rev Proc 2014-46 gives the national average for a bronze plan to be $204 per person per month for use on 2014 calculations involving the ISRP. Everyone uses the same average amount as per §5000A.

2. The calculation for affordability is more complicated that just multiplying HHI by 8%. The coverage is unaffordable if the required contribution (insurance cost less possible premium tax credit) exceeds 8% of HHI. Take a look at what David1980 posted.

3. You will need to look up the cost of silver plan coverage for calculating the PTC. Commonstalk appears to have given a link for that.

4. While some may perceive it as an honor system, I think all preparers need to use due diligence to get it right. BTW, I believe the code A (not affordable) is only granted by virtue of claiming it on the tax return - I don't believe the Marketplace are supposed to issue any such exemptions.

[Uncle Sam]

Hypothetical ACA problem

I thought the ONLY place to get an exemption form was through the Marketplace?
Who else would issue it?

The Form 8965 is NOT a processable form this year - as I learned from IRS Stakeholder
Liaison this week. It is not posted on irs.gov website because it's not required for
reporting until tax year 2015.

[Black Bart]

Thanx folks

Bart

1. You don't need to check any bronze plan figures. Rev Proc 2014-46 gives the national average for a bronze plan to be $204 per person per month for use on 2014 calculations involving the ISRP. Everyone uses the same average amount as per §5000A.

2. The calculation for affordability is more complicated that just multiplying HHI by 8%. The coverage is unaffordable if the required contribution (insurance cost less possible premium tax credit) exceeds 8% of HHI. Take a look at what David1980 posted.

3. You will need to look up the cost of silver plan coverage for calculating the PTC. Commonstalk appears to have given a link for that.

4. While some may perceive it as an honor system, I think all preparers need to use due diligence to get it right. BTW, I believe the code A (not affordable) is only granted by virtue of claiming it on the tax return - I don't believe the Marketplace are supposed to issue any such exemptions.

(and that's the best chart I've seen, commonstalk), but a couple of questions for NYEA (and thanks much). I know that for the penalty you have to get the second-lowest cost silver plan and premium tax credits (PTC) figures from the 1095-A to figure actual over/under payment

But for the affordability exemption, I'm confused. Are you saying (1) use the $204 monthly bronze figure by itself for everybody without subtracting PTCs? (2) use the $204 monthly bronze figure and subtract PTCs of a silver plan (that doesn't seem to make sense). [3] use the $204 monthly bronze figure and subtract PTCs of a bronze plan. 4. Something else? Reason I ask is that my University of Illinois tax seminar book said use the lowest-cost bronze figure in your area less (bronze, I assumed) PTCs for affordability exemptions. But maybe that book's outdated and IRS has decided to go with a national average.

P. S. I agree with you about the due diligence and am not advocating that we throw made-up garbage in the hopper, but I'm just sayin' it doesn't seem like IRS even wants any exemption information other those granted by the Marketplace.

RSVP

[Bees Knees]

I thought the ONLY place to get an exemption form was through the Marketplace?
Who else would issue it?

The Form 8965 is NOT a processable form this year - as I learned from IRS Stakeholder
Liaison this week. It is not posted on irs.gov website because it's not required for
reporting until tax year 2015.

Well, maybe that IRS Stakeholder is looking to get fired. Form 8965 is most definitely required for tax year 2014.

Here is the link to the form:

http://www.irs.gov/pub/irs-pdf/f8965.pdf

Here is the link to the instructions:

http://www.irs.gov/pub/irs-pdf/i8965.pdf

And here is the wording in the instructions that tell you the form is required to claim an exemption:

If you are required to file a tax return, you do not have minimum essential coverage for yourself and everyone else in your tax household, and you want to report or claim a coverage exemption for yourself or another member of your tax household, file Form 8965 to report or claim coverage exemptions. Attach Form 8965 to your tax return (Form 1040, Form 1040A, or Form 1040EZ).

[New York Enrolled Agent]

I thought the ONLY place to get an exemption form was through the Marketplace?
Who else would issue it?

The Form 8965 is NOT a processable form this year - as I learned from IRS Stakeholder
Liaison this week. It is not posted on irs.gov website because it's not required for
reporting until tax year 2015.

Sam

A follow-up to Bees. The IRS person might have confused Form 8965 and the Forms 1095-B and C which are not required this year.

Exemptions (depending on which type) are obtainable from either the Marketplace (which will provide an ECN for use on the 8965) or by the IRS via the Form 8965 as part of the Form 1040 return. Some exemptions are exclusive to one of the two (MP or IRS); others can be obtained from either.

We're going to cover this at Metro meeting on January 7. You and your fellow EA (you know who I mean )are welcome to come.

[New York Enrolled Agent]

(and that's the best chart I've seen, commonstalk), but a couple of questions for NYEA (and thanks much). I know that for the penalty you have to get the second-lowest cost silver plan and premium tax credits (PTC) figures from the 1095-A to figure actual over/under payment

Bart

In your original post you asked where you could get the bronze cost. I assumed (in light of your latest post, I think I made a false assumption) you wanted that as part of the penalty. You use the average bronze cost as part of the calculation of the penalty. It is a limiting factor. Thus if the family had 2 people and no coverage for the year, the penalty regardless of income could not exceed 2 times $204 times 12 months = $4,896

IRC §5000A (c) Amount of penalty

(1) In general
The amount of the penalty imposed by this section on any taxpayer for any taxable year with respect to failures described in subsection (b)(1) shall be equal to the lesser of--


(A) the sum of the monthly penalty amounts determined under paragraph (2) for months in the taxable year during which 1 or more such failures occurred, or
(B) an amount equal to the national average premium for qualified health plans which have a bronze level of coverage, provide coverage for the applicable family size involved, and are offered through Exchanges for plan years beginning in the calendar year with or within which the taxable year ends.



For the affordability exemption, the required contribution must exceed 8% of HHI

Required contribution = lowest cost bronze level ( now you use the locality cost) minus the PTC

PTC = second lowest cost silver plan (once again using locality) minus family's expected contribution to health cost

Hopefully, every thing I've written is correct but if not someone will let us know.

[TaxGuyBill]

I agree with New York Enrolled Agent.

For calculation of the limitation for the penalty, we just use the $204 "average" bronze plan.

For the 8% exemption, we need ACTUAL amounts for the lowest cost Bronze plan and the Second Lowest Cost Silver plan (to calculate the hypothetical Premium Tax Credit).

[Black Bart]

If I

I agree with New York Enrolled Agent.

....

For the 8% exemption, we need ACTUAL amounts for the lowest cost Bronze plan and the Second Lowest Cost Silver plan (to calculate the hypothetical Premium Tax Credit).

understand both you and NYEA regarding the affordability exemption; in order to get the client's contribution, you look up the lowest cost (regional) bronze plan but don't use the premiums tax credits listed with it; instead look up the second-lowest cost silver plan and the premium tax credits listed with it, then subtract those silver premium credits from the bronze cost.

This can be done using commonstalk's handy-dandy chart which lists cost of actual plans (silver, bronze, etc.) in ascending price order plus the premium tax credits that go with each and the net contribution (also lets you select state and county to get your regional price). However, it seems odd to subtract silver PTCs from bronze cost, unless I'm misunderstanding you (or both of you).

Is this what you are saying?
Lowest cost bronze plan (before PTCs) less PTCs from the second-lowest cost silver plan equals client's contribution.

[David1980]

Is this what you are saying?
Lowest cost bronze plan (before PTCs) less PTCs from the second-lowest cost silver plan equals client's contribution.

See the worksheet on the bottom of page 11. http://www.irs.gov/pub/irs-dft/i8965--dft.pdf

It's not the PTC of the second-lowest cost silver plan but rather the monthly premium. My guess is the PTC is calculated based off the cost of the second lowest cost silver plan regardless of which plan you actually select, so the worksheet probably calculates the PTC. It would be interesting to compare the calculation on the worksheet to what the marketplace indicates and see if the two match up.

[TaxGuyBill]

See the worksheet on the bottom of page 11. http://www.irs.gov/pub/irs-dft/i8965--dft.pdf

It's not the PTC of the second-lowest cost silver plan but rather the monthly premium. My guess is the PTC is calculated based off the cost of the second lowest cost silver plan regardless of which plan you actually select, so the worksheet probably calculates the PTC. It would be interesting to compare the calculation on the worksheet to what the marketplace indicates and see if the two match up.

That is correct. To figure out the amount of the Premium Tax Credit, the calculation involves the Second Lowest Cost Silver Plan. Once you have the amount, that amount applies to whatever plan you have (or in this case, the lowest Bronze plan).

[Corduroy Frog]

Compile a Flowchart?

I wonder if it is possible, converting information from the above posts into some sort of instruction, to help us determine just what to do about this 8% threshold. First of all, I think we are all thankful for the weblink provided by Commonstalk.

Don't marvel at my ignorance - I may in fact absorb less than most of you, and this stuff is brand new. We had, at some point in the discussion, the following "roadmap":

1. Find the lowest (gross) premium in the Bronze for your state or region.
2. Subtract the CREDIT found in the second-lowest Silver plan for your state or region.
3. Annualize the results above.
4. Divide by AGI. If the results exceed 8% then the taxpayer escapes the penalty as being unaffordable.

This sank in just fine until the two posts above, where reference is made to supplant 1. above with "whatever plan you have." Where I fail to understand is if the taxpayer actually HAS a plan, then he has complied with the requirements of the ACA and is off the hook for the penalty anyway and the calculation is not necessary.

What have I missed? Dave and TaxGuyBill (two of our best people) are apparently happy with their conclusion.

[Black Bart]

You've got company

I wonder if it is possible, converting information from the above posts into some sort of instruction, to help us determine just what to do about this 8% threshold. First of all, I think we are all thankful for the weblink provided by Commonstalk.

Don't marvel at my ignorance - I may in fact absorb less than most of you, and this stuff is brand new. We had, at some point in the discussion, the following "roadmap":

1. Find the lowest (gross) premium in the Bronze for your state or region.
2. Subtract the CREDIT found in the second-lowest Silver plan for your state or region.
3. Annualize the results above.
4. Divide by AGI. If the results exceed 8% then the taxpayer escapes the penalty as being unaffordable.

This sank in just fine until the two posts above, where reference is made to supplant 1. above with "whatever plan you have." Where I fail to understand is if the taxpayer actually HAS a plan, then he has complied with the requirements of the ACA and is off the hook for the penalty anyway and the calculation is not necessary.

What have I missed? Dave and TaxGuyBill (two of our best people) are apparently happy with their conclusion.

Amen to that about commonstalk's link.

About your guy that HAS a plan, you don't need do anything except check the box (line 61 - "full-year coverage") on the back of the 1040 and that's that. You're through with it and don't need any other forms (assuming he had it all year).

I called ATX and they (and Drake) aren't (so far) furnishing a worksheet for the affordability exemption; they're just writing the program to figure the over/underpayment of premiums and the penalty due for not having insurance. Only people I can find online that have the capability to figure the exemption for people whose employers don't offer coverage and didn't buy any insurance through Healthcare.gov or elewhere are Block and TurboTax ($29.99/figures it in three minutes if you happen to be a customer, which I'm not). ATX suggested an email to their "suggestion box" (I'm expecting lotsa help there).

I'm still tryin' to make that affordability worksheet on page 11 of the form 8965 instructions work out -- it wants to know the federal poverty level for some reason (which I can figure up-has to be under 400% as I recall) but don't see how it's having any effect on the worksheet. Take a look at that page 11 and see how is works for your guy (assume that he does NOT have a plan). Your step 4 ("Divide by AGI") doesn't work for me).