Accountants and Other Strangers

We’ve been seeing a lot of media stories on tax filing and the Affordable Care Act. This is the first year when individuals will have to address whether they have coverage – or not – when they file their taxes.

This tax change, like any change, causes conflict and opportunity. The conflict will arise when people file their taxes and discover that the penalty for not having coverage may be greater than they expected.

The penalty for not having coverage for 2014 is the GREATER of 1% of your household income or $95 per adult. Many people have the mistaken impression that the penalty is only $95, regardless.

Here is an example from the IRS on how the penalty works.

Single individual with $40,000 income

Jim, an unmarried individual with no dependents, does not have minimum essential coverage for any month during 2014 and does not qualify for an exemption. For 2014, Jim’s household income is $40,000 and his filing threshold is $10,150.

  • To determine his payment using the income formula, subtract $10,150 (filing threshold) from $40,000 (2014 household income). The result is $29,850. One percent of $29,850 equals $298.50.
  • Jim’s flat dollar amount is $95.

Jim’s annual national average premium for bronze level coverage for 2014 is $2,448. Because $298.50 is greater than $95 and is less than $2,448, Jim’s shared responsibility payment for 2014 is $298.50, or $24.87 for each month he is uninsured (1/12 of $298.50 equals $24.87).

Jim will make his shared responsibility payment for the months he was uninsured when he files his 2014 income tax return, which is due in April 2015.

 For more from the IRS on the individual penalty click here:

 Imagine Jim’s surprise if he thought his penalty was only going to be $95 when it will really be $298.50! He may want to take action to avoid an even larger penalty next year when the fee is the greater of 2% of household income or $325 per adult.

 And, that’s where the opportunity comes in. Jim is likely to ask his tax preparer about obtaining coverage and what it all means.

 Wouldn’t it be a good idea for brokers to make the acquaintance of tax preparers to help with Jim’s questions?

Focus on Subsidies may Shortchange Employer Plan Benefits

It seems that everyone is focused on the availability of subsidies in the exchange plans. We get many questions about whether and how employees can qualify for a subsidy. The general answer is that if an employee has an offer of coverage from their employer and it meets the affordability and coverage requirements – they can’t waive the employer plan and qualify for a subsidy.

But, it’s important to remember – and remind – employees who have employer based plans available to them that an employer plan is also a subsidized plan. And, the subsidy through the employer plan – as well as the scope of coverage provided by the employer – may be of much greater value.

 Employer contributions to an employee’s coverage (and, if applicable, their family members) are tax free benefits. The subsidy, so to speak, is that the employee doesn’t pay taxes on the employer’s contribution to coverage!

 Most employers also deduct any employee contributions to premiums on a pre-tax basis. There’s another subsidy masquerading as a pre-tax contribution.

 An individual purchasing coverage in the health exchange may qualify for a subsidy to help pay premiums. But, the premiums that the individual pays are paid on an after-tax basis.

 And, I would be remiss in mentioning that employer-based coverage generally means that an employer – or the broker on the case – will assist with explaining the plan of benefits as well as help with any problems that may arise with claims.

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