Q and A On Affordable Care Act 2014 Premium Tax Credit and Penalties

Can provisions of the Affordable Care Act help you pay for health insurance coverage?

Yes! Starting January 1, 2014, you are generally required to have adequate health insurance or pay a penalty.

The good news is that if your income is within certain limits, you may qualify for an advanced premium tax credit to help pay for that coverage. This credit is paid directly to your insurance company as a subsidy.

How do I know if I qualify for a premium tax credit (subsidy)?

You may be able to get this tax credit if your employer doesn’t offer health insurance, or if they do, it covers less than 60% of covered benefits, or the premiums would cost you more than 9.5% of your annual household income.

To qualify, you must purchase insurance coverage through your state’s “marketplace” – the website for insurance.

Your income must not be too low or too high. You cannot get the credit if you qualify for government programs like Medicare and Medicaid. You are only eligible for the credit if your household income is above between 100% and 400% of the federal poverty level.

To see if you may qualify for the credit, use TaxACT’s Health Care Tax Credit Calculator.

How do I claim the credit?

You start by applying for insurance through your state’s health insurance marketplaces, also known as an exchange.

You must enroll before March 31, 2014, to receive health insurance through the exchange.
When you apply through an exchange, you’ll answer questions to determine whether you qualify for the credit.

What happens if my income is higher or lower than I expected?

Most of us can’t predict exactly how much we’ll make in a year. Make the best estimate you can, and when you file your 2014 income tax return, the amount is reconciled with the tax credit you should receive based on your actual income for the year.

If you incorrectly estimate your income, you may receive a bigger or smaller tax credit than you were entitled to. If you were entitled to a larger credit, you will get that money back. If you qualified for a smaller or no credit, you may have to pay back some or all of the credit.

If you don’t like the possibility of having to pay back money at the end of the year, you can pay your entire premium yourself during the year.

That way, you would receive your entire credit as a refund when you file your income tax return, provided you were entitled to one.

Who doesn’t have to get health insurance or pay a penalty?

Not everyone has to buy insurance or pay a penalty. You won’t be penalized for not having insurance if your income is low enough that the lowest cost plan would cost more than 8% of your 2014 income, or if you are not required to file a tax return based on your income level.

There are also exceptions for people whose religious beliefs prohibit medical treatment, members of a recognized health care sharing ministry, members of a federally recognized tribe, and people in other special situations.

How much penalty do I pay if I don’t get insurance?

The penalty for 2014, which will be paid on your tax return due April 2015, is 1% of your annual 2014 income or $95 per person, whichever is higher.

If you have children under age 18, the penalty is $47.50 per child – up to $285 total per family.
The penalty rises for 2015, and again for 2016. The maximum penalty per family in 2016 is $2,085.

Paying a penalty does not mean you are covered or entitled to any medical services.

Child Care Tax Credit for Children Under 13, Including Summer Care

 

Parents should note that they won't be able to deduct child care cost, unless they can provide a Tax ID for the Child Care Provider.  Also parents should be aware that if a child care provider comes to your home, you may be considered as a household employer.  

 

Also this tax credit applies to children who are under the age of 13, and includes day camps, but not overnight camps.  Parents cannot include the cost of child care cost that is provided by a spouse, or a person who is your dependent.  This usually includes older sisters and brothers who live in the household.

 

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Keep the Child Care Credit in Mind for Summer

If you are a working parent or look for work this summer, you may need to pay for the care of your child or children. These expenses may qualify for a tax credit that can reduce your federal income taxes. The Child and Dependent Care Tax Credit is available not only while school’s out for summer, but also throughout the year. Here are eight key points the IRS wants you to know about this credit.

 

1. You must pay for care so you – and your spouse if filing jointly – can work or actively look for work. Your spouse meets this test during any month they are full-time student, or physically or mentally incapable of self-care.

 

2. You must have earned income. Earned income includes earnings such as wages and self-employment. If you are married filing jointly, your spouse must also have earned income. There is an exception to this rule for a spouse who is full-time student or who is physically or mentally incapable of self-care.

 

3. You must pay for the care of one or more qualifying persons. Qualifying children under age 13 who you claim as a dependent meet this test. Your spouse or dependent who lived with you for more than half the year may meet this test if they are physically or mentally incapable of self-care.

 

4. You may qualify for the credit whether you pay for care at home, at a daycare facility outside the home or at a day camp. If you pay for care in your home, you may be a household employer. For more information, see Publication 926, Household Employer's Tax Guide.

 

5. The credit is a percentage of the qualified expenses you pay for the care of a qualifying person. It can be up to 35 percent of your expenses, depending on your income.

 

6. You may use up to $3,000 of the unreimbursed expenses you pay in a year for one qualifying person or $6,000 for two or more qualifying person.

 

7. Expenses for overnight camps or summer school tutoring do not qualify. You cannot include the cost of care provided by your spouse or a person you can claim as your dependent. If you get dependent care benefits from your employer, special rules apply.

 

8. Keep your receipts and records to use when you file your 2013 tax return next year. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your return

Work Opportunity Tax Credit

 

The information below is directly from the IRS and explains how to qualify and take the Work Opportunity Tax Credit for Employers.  The latest transition relief rules information is included.

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The legislative changes under the American Taxpayer Relief Act of 2012 (H.R. 8), retroactively allow taxable employers to claim the Work Opportunity Tax Credit (WOTC) for all of the targeted group employee categories listed on Form 5884, if they were hired on or after Jan. 1, 2011, and before Dec. 31, 2013.

That same act also extends the expanded Work Opportunity Tax Credit available for hiring qualified veterans through Dec. 31, 2013, for both taxable and tax-exempt employers

Pre-screening and Certification

All employers must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit, by filing Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work.

However, the IRS has issued transition relief rules for employers who hire employees from one of the targeted group categories, other than qualified veterans, during 2012. For targeted group members other than qualified veterans hired on or after Jan.1, 2012, and on or before March 31, 2013, an employer will be considered to have timely filed Form 8850 if it submits the completed Form 8850 no later than April, 29, 2013. For qualified veterans hired on or after Jan.1, 2013, and on or before March 31, 2013, an employer will be considered to have timely filed Form 8850 if it submits Form 8850 no later than April 29, 2013. See Notice 2013-14 for further information.

Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850.

Claiming the Credit

Taxable Employers

After the required certification is secured, taxable employers claim the tax credit as a general business credit against their income tax by filing the following:

• Form 5884 (with instructions) (PDF),
• Form 3800 (PDF),
• Instructions for Form 3800 (PDF), and
• Your business’s related income tax return and instructions (i.e., Forms 1040, 1041, 1120, etc.)

Tax-exempt Employers

Qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who begin work on or after Nov. 22, 2011, and before Jan. 1, 2014.

After the required certification (Form 8850) is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans (PDF).

File Form 5884-C after filing the related employment tax return for the employment tax period for which the credit is claimed. It is recommended that qualified tax-exempt employers not reduce their required deposits in anticipation of any credit as the forms are processed separately.

In addition to Form 5884-C and its instructions, tax-exempt employers should see IRS Notice 2012-13 and the Frequently Asked Questions & Answers for more details for claiming the credit

Doing Your Own Taxes? Child and Dependent Care Tax Credit, How to;

Tax credits can play an important part in you getting a larger refund.  Knowing which tax credit to approach and which ones you qualify for is an important part of doing your own taxes.

 

The IRS has provided the information below to help you discern the Child and Dependent Care Tax Credit

 

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Claiming the Child and Dependent Care Tax Credit

 

The Child and Dependent Care Credit can help offset some of the costs you pay for the care of your child, a dependent or a spouse. Here are 10 facts the IRS wants you to know about the tax credit for child and dependent care expenses.

1. If you paid someone to care for your child, dependent or spouse last year, you may qualify for the child and dependent care credit. You claim the credit when you file your federal income tax return.

 

2. You can claim the Child and Dependent Care Credit for “qualifying individuals.” A qualifying individual includes your child under age 13. It also includes your spouse or dependent who lived with you for more than half the year who was physically or mentally incapable of self-care.

 

3. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.

 

4. You, and your spouse if you file jointly, must have earned income, such as income from a job. A special rule applies for a spouse who is a student or not able to care for himself or herself.

 

5. Payments for care cannot go to your spouse, the parent of your qualifying person or to someone you can claim as a dependent on your return. Payments can also not go to your child who is under age 19, even if the child is not your dependent.

 

6. This credit can be worth up to 35 percent of your qualifying costs for care, depending upon your income. When figuring the amount of your credit, you can claim up to $3,000 of your total costs if you have one qualifying individual. If you have two or more qualifying individuals you can claim up to $6,000 of your costs.

 

7. If your employer provides dependent care benefits, special rules apply. See Form 2441, Child and Dependent Care Expenses for how the rules apply to you.

 

8. You must include the Social Security number on your tax return for each qualifying individual.

 

9. You must also include on your tax return the name, address and Social Security number (individuals) or Employer Identification Number (businesses) of your care provider.

 

10. To claim the credit, attach Form 2441 to your tax return. If you use IRS e-file to prepare and file your return, the software will do this for you.

Increase Your Refund, Saver's Credit for 2012 Tax Return, Have Until April 15, 2013

Credit Helps Low- and Moderate-Income Workers Save for Retirement

WASHINGTON — Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2012 and the years ahead, according to the Internal Revenue Service.
The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2012 tax return. People have until April 15, 2013, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2012. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2013 contributions soon so their employer can begin withholding them in January.

The saver’s credit can be claimed by:

• Married couples filing jointly with incomes up to $57,500 in 2012 or $59,000 in 2013;
• Heads of Household with incomes up to $43,125 in 2012 or $44,250 in 2013; and
• Married individuals filing separately and singles with incomes up to $28,750 in 2012 or $29,500 in 2013.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

In tax-year 2010, the most recent year for which complete figures are available, saver’s credits totaling just over $1 billion were claimed on more than 6.1 million individual income tax returns. Saver’s credits claimed on these returns averaged $204 for joint filers, $165 for heads of household and $122 for single filers.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.
Other special rules that apply to the saver’s credit include the following:

• Eligible taxpayers must be at least 18 years of age.
• Anyone claimed as a dependent on someone else’s return cannot take the credit.
• A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.

Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2012, this rule applies to distributions received after 2009 and before the due date, including extensions, of the 2012 return. Form 8880 and its instructions have details on making this computation.

Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on IRS.gov.

Large Tax Credits for Employers Who Hire Veterans by End of Year

Listen up Employers, the IRS is offering large tax credit to Employers who hire Veterans who begin work, on or after November 22, 2011 but before January 1, 2013.

 

Employers Hiring Veterans by Year’s End May Get Expanded Tax Credit

 

Employers planning to claim an expanded tax credit for hiring certain veterans should act soon, according to the IRS. Many businesses may qualify to receive thousands of dollars through the Work Opportunity Tax Credit, but only if the veteran begins work before the new year.
Here are six key facts about the WOTC as expanded by VOW to Hire Heroes Act of 2011.

1. Hiring Deadline: Employers may be able to claim the expanded WOTC for qualified veterans who begin work on or after Nov. 22, 2011 but before Jan. 1, 2013.

 

2. Maximum Credit: The maximum tax credit is $9,600 per worker for employers that operate for-profit businesses, or $6,240 per worker for tax-exempt organizations.

 

3. Credit Factors: The amount of credit will depend on a number of factors. Such factors include the length of the veteran’s unemployment before being hired, the number of hours the veteran works and the amount of the wages the veteran receives during the first-year of employment.

 

4. Disabled Veterans: Employers hiring veterans with service-related disabilities may be eligible for the maximum tax credit.

 

5. State Certification: Employers must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency. The form must be filed within 28 days after the qualified veteran starts work. For additional information about your SWA visit the U.S. Department of Labor’s WOTC website.

 

6. E-file: Some states accept Form 8850 electronically.

 

Visit the IRS.gov website and enter ‘WOTC’ in the search field for forms and more details about the expanded tax credit for hiring veterans.
Links:

• Expanded Work Opportunity Tax Credit Available for Hiring Qualified Veterans

The Following Tax Credits Count Really Big

Any of the following tax credits, you may be able to SUBTRACT from your income tax.  Review them mid-year to see if you might qualify by the end of the year:  (A small step in tax planning)

Alternative motor vehicle

Alternative fuel vehicle refueling property

Child and dependent care

Child tax credit

Credit to holders of tax credit bonds

Education

Elderly or disabled

Electric vehicle credits

Foreign tax

Mortgage interest

Prior year minimum tax

Residential energy

Retirement savings contributions

URGENT - IRS Announcement - Employers Have Extended Time for WOTC Tax Credit Up to $9,600 per Veteran

This just came in within the hour.  Employers have until June 19 to take advantage of the Work Opportunity Tax Fredit  (WOTC) for 2011 and early 2012.  Read the IRS announcement below:

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Employers that hired unemployed veterans during late 2011 and early 2012 had an expanded period to request the required certification for claiming the expanded Work Opportunity Tax Credit (WOTC). That expanded period ends on Tuesday, June 19.

The IRS is reminding employers that for eligible veterans hired on or after Nov. 22, 2011 and before May 22, 2012, they have until June 19 to file certification forms with state workforce agencies.

Here are some important points to know about the credit and upcoming deadline:

• New rules provide for an expanded WOTC to employers that hire eligible unemployed veterans.

• The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 per veteran for tax-exempt organizations.

• The amount of the credit depends on a number of factors, including the length of the veteran’s unemployment before hiring, the hours the veteran works and the amount of first-year wages paid.

• Employers hiring veterans with service-related disabilities may be eligible for the maximum credit.

• Normally, an eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency within 28 days after an eligible worker starts work. But under a special rule employers have until June 19, 2012, to file this form for veterans hired on or after Nov. 22, 2011, and before May 22, 2012.

• The 28-day rule for timely filing applies for eligible veterans hired on or after May 22, 2012, and before Jan. 1, 2013.

• Form 8850 can be faxed or electronically transmitted to the state workforce agency, as long as the agency is able to receive the certification forms that way.

• For-profit employers claim the credit on their income tax return using Form 5884, Work Opportunity Credit, and Form 3800, General Business Credit.

• Tax-exempt organizations follow a separate claim procedure using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.


More details about the expanded WOTC and the forms are available on IRS.gov.