Employer Based Health Coverage Don't Meet Obamacare's Standards?

There appears to be more questions than answers concerning the new health care bill.  The Motley Fool sums it up best.  Below is an over-view of the new law.  My only comment is that regardless of how much press there is, or how many arguments there are, this health care bill is LAW and there are penalties for not complying.  Learn what you can, do what you can.

What Your Health Care Will Look Like Under Obamacare

Obamacare's provisions promise that everyone will have individual health insurance, and the individual mandate within the legislation requires everyone to have that coverage or face potential penalties. Yet millions of Americans are worried about what their insurance policies will look like after Obamacare fully takes effect and whether the coverage those policies will provide will be better than what many of them already have.

Not all of the details have been fleshed out yet. But early signs point to a few likely things you'll see from your health insurance when Obamacare's provisions take full effect.

1. Those without employer-based group coverage now will likely get better benefits.

 One likely outcome of the Affordable Care Act is that the vast majority of individual health insurance plans — as opposed to group plans that employers provide — will have to provide more comprehensive coverage than they do currently. A 2012 study from researchers at The University of Chicago found that among the roughly 14 million Americans who have individual health coverage rather than group coverage through an employer or other organization, more than half of those plans didn't provide enough benefits to qualify under Obamacare's standards.

Under Obamacare, those substandard plans will be replaced by newer coverage. Some preliminary figures from state health insurance exchanges show that in many states, that new coverage is coming with higher premiums, especially for those plans that provided much more limited benefits than will be required under the new law. Whether better benefits will provide enough of an offset to result in lower overall costs will vary from person to person and across different policies. People who have minimal health expenses will likely end up paying more overall, while those who use their health benefits more often could see cost savings under Obamacare plans.

2. Those covered under employer-provided plans already have generally strong coverage.

The same study also examined people covered under group plans, typically through their employer. The differences in quality were staggering. The study authors divided different insurance policies into tiers based on how much of a patient's medical bills each policy would cover. In group plans, almost two-thirds of members had policies that covered 80% or more of their costs, compared to just 2% of those who had to get their coverage individually. Moreover, thanks to employer contributions, those in group plans paid less than half what individual-plan members paid in out-of-pocket costs.

As a result, most people covered by their employers would probably prefer to keep their existing coverage. But many workers are afraid that employers might choose to discontinue offering health insurance of their own, deciding instead to let Obamacare's other provisions take care of their workers.

3. Whether employers will continue providing coverage will depend greatly on how health insurance exchanges look.

Despite fears of widespread employer abandonment of group health-insurance coverage, the 2012 National Survey of Employer-Sponsored Health Plans from HR consulting firm Mercer found that very few employers plan to cancel their health insurance benefits after Obamacare takes full effect. But smaller employers were much more likely to say they would cut coverage — with 16% of employers with fewer than 500 employees planning health plan cuts compared to just 6% of employers with 500 or more workers.

For many, the decision may well hinge on what the individual and small-business health insurance exchanges under Obamacare end up looking like. States have the choice to run their own exchanges, but if they don't, the federal government will have exchanges to cover their residents. Many states have already released some details about their exchanges, although others are still pending. With open enrollment in the exchanges still scheduled for Oct. 1, 2013, it should be much clearer soon whether it will make sense for employers to drop coverage even in the face of penalties for some businesses that drop their plans, as well as the loss of tax credits that some eligible businesses will get for providing coverage.

Waiting for the details

Unfortunately, there's still a lot up in the air about how Obamacare will work, especially as some states are still figuring out what they will offer their citizens under the law. Clearly, some people will get far better health insurance coverage under Obamacare than they do now. But some people will also end up paying more than they do now for coverage they'd be just as happy to keep if they could.

How Obamacare Changed Your Taxes

As much as Obamacare will affect your medical care and your health insurance coverage, the effects don't stop there. The legislation also made major changes to the tax laws — with ramifications not just for this year but extending well into the future.

Lawmakers embedded several different tax provisions into the broader Obamacare legislation. Those changes will have an impact on taxpayers at all income levels.

Perhaps the biggest change in the law expanded the tax that workers currently pay for Medicare to cover both higher amounts and different types of income. Until this year, workers paid 1.45% of their wages in Medicare withholding taxes, with employers paying another 1.45% out of their own pockets. Self-employed individuals paid the combined 2.9% on their own. Although the amount of wages subject to Medicare tax used to be limited in the same way as Social Security withholding, that changed in 1991, and by 1994, the limits on wages subject to Medicare taxation were removed entirely.

Going forward, though, Obamacare imposes additional Medicare taxes on certain individuals. In particular, two groups will be affected:

• Joint filers with wages or other work-related earnings greater than $250,000 and singles earning more than $200,000 will have to pay an additional 0.9 percentage points in Medicare tax, bringing their total to 2.35% for employees or 3.8% for self-employed workers. Employers are supposed to handle this requirement in their withholding, but for two-earner couples, that may prove impossible, as your employer will have no knowledge of what your spouse earns.
• Those with total adjusted gross incomes of more than $250,000 for joint filers or $200,000 for singles will have Medicare taxes imposed on their investment income as well. On whatever amount of investments exceeds the $250,000 gross-income level, you'll have to pay the full 3.8% surtax yourself.

The net effect on high-income earners will be to bring total top tax brackets to 43.4% — the 39.6% regular tax amount plus the 3.8% Medicare tax.

Hitting lower-income workers

Those who earn less than these $200,000 and $250,000 thresholds shouldn't assume that their taxes will be unaffected by Obamacare. New limitations on flexible spending arrangements have hit taxpayers of all income levels, limiting the amount you can set aside tax-free in a flex plan to $2,500 per year. Previously, there was no technical upper limit, although most employers imposed a $5,000 maximum. But for those who have high levels of predictable medical expenses, the forced reduction in flex-plan use could cost you hundreds of dollars in extra income, Social Security withholding, and Medicare withholding taxes.
Moreover, those who rely on deducting medical expenses won't be able to get as big a tax benefit from them. Obamacare raised the floor on itemized medical expenses from 7.5% of gross income to 10%. That may not sound like much, but it could reduce your deduction by thousands of dollars and thereby increase your tax bill substantially.

Will you get any benefit?

The question, of course, is whether Obamacare's benefit will exceed the extra taxes you'll pay. The jury's still out on that question, but some have watched the way that health insurance and hospital stocks have reacted to Obamacare and have concluded that much of the benefit will go to industry players rather than to individuals. For newly covered individuals, the fact that they'll have coverage at all may be the only benefit they'll get from Obamacare, with higher taxes simply being part of the price we all pay for it.

Regardless, as you consider your taxes this year, don't forget about the new Obamacare provisions. Planning for them now could save you from a big headache down the road.

To read the entire article provided by The Motley Fool, you can click here and gain access.

Tax Advantages of Starting a LLC; Limited Liability Corporation

Limited Liability of an LLC

Like a corporation, owners of an LLC enjoy limited liability, which protects their personal assets from judgments and other obligations of the entity.  You can download a free business check list at CorpNet.

When the LLC incurs debts or liabilities, the creditors are limited to the assets of the LLC. In the event the assets are insufficient to cover the debts of the business, creditors may not generally collect additional amounts from the members.

With a Sole Proprietor business structure, the owner of the business is personally liable for all the obligations of the business.

Fewer Formalities Required

A Limited Liability Company usually requires fewer formalities than a corporation, such as regular meetings of a board of directors and an annual meeting of shareholders, like an S or C-Corporation.

However and LLC does require proper filing of Articles of Organization with the Secretary of State to be formed and the members of the LLC are required to enter into an Operating Agreement that governs how the LLC will be operated.

Pass-Through Tax Treatment

LLCs are treated as “pass through” entities under the Internal Revenue Code unless the members elect to have it taxed like a corporation.

This means that the owners report profits and losses only on their own personal income tax forms and no separate entity level filing is required.

If a C-Corporation earns a profit, that profit is taxed. If those profits are then distributed to its shareholders, the shareholders pay income taxes on those dividends. This is known as the “double tax” and, while there are ways for small businesses to legitimately avoid the double tax, LLCs that have pass-through tax treatment are not subject to this type of tax treatment.

You can form a LLC within minutes, online for $49, plus state filing fees.

Tax Credits, Benefits Education for Parents and Students, form 1098-T, EIC

Be sure to read the complete  article.  You will learn that parents may be able to claim the EIC credit for children up to the age of 24.

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Parents and Students: Check Out College Tax Benefits for 2012 and Years Ahead

 

WASHINGTON — The Internal Revenue Service today reminded parents and students that now is a good time to see if they qualify for either of two college education tax credits or any of several other education-related tax benefits.

In general, the American opportunity tax credit, lifetime learning credit and tuition and fees deduction are available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the primary taxpayer, the taxpayer’s spouse or a dependent of the taxpayer.

Though a taxpayer often qualifies for more than one of these benefits, he or she can only claim one of them for a particular student in a particular year. The benefits are available to all taxpayers – both those who itemize their deductions on Schedule A and those who claim a standard deduction. The credits are claimed on Form 8863 and the tuition and fees deduction is claimed on Form 8917.

The American Taxpayer Relief Act, enacted Jan. 2, 2013, extended the American opportunity tax credit for another five years until the end of 2017. The new law also retroactively extended the tuition and fees deduction, which had expired at the end of 2011, through 2013. The lifetime learning credit did not need to be extended because it was already a permanent part of the tax code.

For those eligible, including most undergraduate students, the American opportunity tax credit will yield the greatest tax savings. Alternatively, the lifetime learning credit should be considered by part-time students and those attending graduate school. For others, especially those who don’t qualify for either credit, the tuition and fees deduction may be the right choice.

All three benefits are available for students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. None of them can be claimed by a nonresident alien or married person filing a separate return. In most cases, dependents cannot claim these education benefits.

Normally, a student will receive a Form 1098-T from their institution by the end of January of the following year. This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax benefits. Taxpayers should see the instructions to Forms 8863 and 8917 and Publication 970 for details on properly figuring allowable tax benefits.

Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Here are some key features of the credit:

• The credit targets the first four years of post-secondary education, and a student must be enrolled at least half time. This means that expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college do not qualify. Any student with a felony drug conviction also does not qualify.
• Tuition, required enrollment fees, books and other required course materials generally qualify. Other expenses, such as room and board, do not.
• The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
• The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
• Forty percent of the American opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student. Other education-related credits and deductions do not provide a benefit to people who owe no tax.

The lifetime learning credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Though the half-time student requirement does not apply, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

• Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
• The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
• Income limits are lower than under the American opportunity tax credit. For 2012, the full credit can be claimed by taxpayers whose MAGI is $52,000 or less. For married couples filing a joint return, the limit is $104,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $124,000 or more and singles, heads of household and some widows and widowers whose MAGI is $62,000 or more.

Like the lifetime learning credit, the tuition and fees deduction is available for all levels of post-secondary education, and the cost of one or more courses can qualify. The annual deduction limit is $4,000 for joint filers whose MAGI is $130,000 or less and other taxpayers whose MAGI is $65,000 or less. The deduction limit drops to $2,000 for couples whose MAGI exceeds $130,000 but is no more than $160,000, and other taxpayers whose MAGI exceeds $65,000 but is no more than $80,000.

Eligible parents and students can get the benefit of these provisions during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer.

There are a variety of other education-related tax benefits that can help many taxpayers. They include:

• Scholarship and fellowship grants—generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
• Student loan interest deduction of up to $2,500 per year.
• Savings bonds used to pay for college—though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
• Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.

Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the earned income tax credit.