Archive for the ‘Taxes’ Category

Tax Cut Pays Part of Its Way in Test of Republican Scoring

Thursday, August 6th, 2015

Originally Published in ACCOUNTINGTODAY.COM

(Bloomberg) A bipartisan U.S. Senate bill that would revive and extend dozens of lapsed tax breaks would spur economic growth and cover about 11 percent of its own costs, according to Congress’s nonpartisan scorekeeper.

The analysis released Tuesday is an early test of Republicans’ focus on what’s known as dynamic scoring. It refers to the principle that legislation can be significant enough to change the size of the economy and affect the U.S. budget.

Republicans say that’s a more accurate way to study bills, and they’ve changed budget rules to include the analyses. Democrats are dubious, citing the uncertainty of projections.

The bill in question was approved 23-3 by the Senate Finance Committee last month. It would extend lapsed tax breaks through 2016, including 50 percent bonus depreciation, the research and development break and the production tax credit for wind energy.

Without dynamic scoring, the bill would cost the government $96.9 billion in lost revenue over the next 10 years. The tax breaks cause production and tax revenue to grow by 0.1 percent over the first five years, according to the analysis from the Joint Committee on Taxation.

The analysis says the bill would create $10.4 billion in tax revenue by increasing economic growth, after subtracting the increased cost of federal debt stemming from higher interest rates. The result would be a net cost of $86.6 billion.

The estimate, unlike previous attempts to use dynamic scoring, produces a single number, though one that the scorekeepers say is “subject to some uncertainty.” It’s not likely to settle the partisan dispute over dynamic scoring.

“We have in hand a good start for our new scoring rule approved as part of the balanced budget resolution earlier this year,” Republican Mike Enzi of Wyoming, chairman of the Senate Budget Committee, said in a statement. “This is something from which we can build upon as we go forward in this new era of better legislative scoring and honest accounting.”

Ten Things to Know about Identity Theft and Your Taxes

Wednesday, July 1st, 2015

Originally Published in IRS.GOV

Learning you are a victim of identity theft can be a stressful event. Identity theft is also a challenge to businesses, organizations and government agencies, including the IRS. Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.

Many times, you may not be aware that someone has stolen your identity. The IRS may be the first to let you know you’re a victim of ID theft after you try to file your taxes.

The IRS combats tax-related identity theft with a strategy of prevention, detection and victim assistance. The IRS is making progress against this crime and it remains one of the agency’s highest priorities.

Here are ten things to know about ID Theft:

  1. Protect your Records.  Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it’s necessary and you know the person requesting it.Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for Internet accounts.
  2. Don’t Fall for Scams.  The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.
  3. Report ID Theft to Law Enforcement.  If your SSN was compromised and you think you may be the victim of tax-related ID theft, file a police report. You can also file a report with the Federal Trade Commission using the FTC Complaint Assistant. It’s also important to contact one of the three credit bureaus so they can place a freeze on your account.
  4. Complete an IRS Form 14039 Identity Theft Affidavit.  Once you’ve filed a police report, file an IRS Form 14039 Identity Theft Affidavit.  Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by paper.
  5. Understand IRS Notices.  Once the IRS verifies a taxpayer’s identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer’s account. Some notices may contain a unique Identity Protection Personal Identification Number (IP PIN) for tax filing purposes.
  6. IP PINs.  If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. In 2014, the IRS launched an IP PIN Pilot program. The program offers residents of Florida, Georgia and Washington, D.C., the opportunity to apply for an IP PIN, due to high levels of tax-related identity theft there.
  7. Data Breaches.  If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft.  Further, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.
  8. Report Suspicious Activity.  If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.
  9. Combating ID Theft.  Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. The average prison sentence for identity theft-related tax refund fraud grew to 43 months in 2014 from 38 months in 2013, with the longest sentence being 27 years.During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft.  Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed. So far this year, new fraud filters stopped about 3 million suspicious returns for review, an increase of more than 700,000 from the year before.
  10. Service Options.  Information about tax-related identity theft is available online. We have a special section on IRS.gov devoted to identity theft and a phone number available for victims to obtain assistance.

For more on this Topic, see the Taxpayer Guide to Identity Theft.

Six Tips to Help You Pay Your Tax Bill this Summer

Tuesday, June 30th, 2015

Originally Published in IRS.GOV

If you get a tax bill from the IRS, don’t ignore it. The longer you wait the more interest and penalties you will have to pay. Here are six tips to help you pay your tax debt and avoid extra charges:

1. Reply promptly.  After tax season, the IRS typically sends out millions of notices. Read it carefully and follow the instructions. If you owe, the notice will tell you how much and give you a due date. You should respond to the notice promptly and pay the bill to avoid additional interest and penalties.

2. Pay online.  Using an IRS electronic payment method to pay your tax is quick, accurate and safe. You also get a record of your payment. Options for electronic payments include:

Direct Pay and EFTPS are free services. If you pay by credit or debit card, the payment processing company will charge a fee.

3. Apply online to make payments.  If you are not able to pay your tax in full, you may apply for an installment agreement. Most people and some small businesses can apply using the Online Payment Agreement Application on IRS.gov. If you are not able to apply online, or you prefer to do so in writing, use Form 9465, Installment Agreement Request to apply. The best way to get the form is on IRS.gov/forms. You can download and print it at any time.

4. Check out a direct debit plan.  A direct debit installment agreement is the lower-cost hassle-free way to pay. The set-up fee is less than half of the fee for other plans. The direct debit fee is $52 instead of the regular fee of $120. With a direct debit plan, you pay automatically from your bank account on a day you set each month. There is no need for you to write a check and make a trip to the post office. There are no reminder notices from the IRS and no missed payments. For more see the Payment Plans, Installment Agreements page on IRS.gov.

5. Pay by check or money order.  Make your check or money order payable to the U.S. Treasury. Be sure to include:

  • Your name, address and daytime phone number
  • Your Social Security number or employer ID number for business taxes
  • The tax period and related tax form, such as “2014 Form 1040”

Mail it to the address listed on your notice. Do not send cash in the mail.

6. Consider an Offer in Compromise.  With an Offer in Compromise, or OIC, you may be able to settle your tax debt with the IRS for less than the full amount you owe. An OIC may be an option if you are not able to pay your tax in full. It may also apply if full payment will create afinancial hardship. Not everyone qualifies, so you should explore all other ways to pay before submitting an OIC. To see if you may qualify and what a reasonable offer might be, use the IRS Offer in Compromise Pre-Qualifiertool.

Find out more about the IRS collection process on IRS.gov.

Revenue Ruling 2015-13: 2016 Tax Deadline will be April 18 for Most Taxpayers

Wednesday, June 3rd, 2015

The Internal Revenue Service today issued guidance regarding the filing deadline for individual tax returns next year. The guidance clarifies the effect Emancipation Day and Patriots’ Day have on the filing deadline for individuals filing their returns in April 2016.

In most years, the filing deadline is April 15. In some years, the District of Columbia’s observation of Emancipation Day can affect the nation’s filing deadline (District of Columbia holidays impact tax deadlines in the same way that federal holidays do). Because Emancipation Day falls on Saturday, April 16, in 2016 it will be observed on Friday, April 15, which pushes the tax filing deadline to the next business day – Monday, April 18, 2016. Although most individual taxpayers will have until April 18, 2016 to file and pay their taxes, Patriots’ Day will be observed next year on Monday, April 18 in Maine and Massachusetts. This means individual taxpayers in Maine and Massachusetts will have until April 19, 2016 to file and pay their taxes.

Revenue Ruling 2015-13 will be published in Internal Revenue Bulletin 2015-22 on June 1, 2015.

Thieves access IRS Get Transcript app, 100,000 accounts compromised

Thursday, May 28th, 2015

Originally Published in Journal of Accountancy

The IRS announced on Tuesday that criminals have used taxpayer-specific information to gain access to approximately 100,000 taxpayers’ accounts through the IRS’s Get Transcript online application and steal those taxpayers’ data. The Get Transcript app has been shut down temporarily.

The IRS says the criminals obtained enough taxpayer-specific information from outside sources that they were able to get through the Get Transcript authentication process. The IRS became aware of the problem late last week when it noticed unusual activity taking place in the application. The hacking apparently started in February and involved approximately 200,000 attempts to access the Get Transcript app. The Get Transcript app is not hosted on the IRS computer system that handles tax return filing submissions, and the IRS says that the filing submission system remains secure.

Both the Treasury Inspector General for Tax Administration (TIGTA) and the IRS’s Criminal Investigation unit are investigating the matter. As for a motive, the IRS said in its announcement of the breach, “It’s possible that some of these transcript accesses were made with an eye toward using them for identity theft for next year’s tax season.”

The IRS says it will provide a free credit monitoring service for those taxpayers whose accounts were hacked. It is also notifying all 200,000 taxpayers whose accounts were the targets of the unauthorized access attempts. Those letters will start going out this week.

Supreme Court: Maryland has been wrongly double-taxing residents who pay income tax to other states

Friday, May 22nd, 2015

Originally Published in The Washington Post

A divided Supreme Court ruled Monday that Maryland’s income tax law is unconstitutional because it does not provide a full tax credit to residents for income tax paid outside the state, a ruling likely to cost Maryland counties and localities across the country millions of dollars in revenue.

The court voted 5 to 4 to affirm a 2013 Maryland Court of Appeals ruling that the state’s practice of withholding a credit on the county segment of the state income tax wrongly exposes some residents with out-of-state income to double taxation. Justices said the provision violated the Constitution’s commerce clause because it might discourage individuals from doing business across state lines.

In most states, income from elsewhere is taxed both where the money is made and where tax­payers live. To guard against double taxation, states usually give residents a full credit for income taxes paid on out-of-state earnings.

Maryland residents are permitted to deduct income taxes paid to other states from what they pay in Maryland income tax. But the state did not allow the same deduction to be applied to a “piggyback” tax that is collected by the state for counties and the city of Baltimore.

The ruling affects about 55,000 Maryland taxpayers, according to the state comptroller’s office.

Those who tried to claim the credit on their county income tax returns between 2006 and 2014 are likely to be eligible for refunds, which officials estimate could total $200 million with interest.

Going forward, certain small-business owners who pay income taxes to another state on income earned in that state will be able to claim a credit for both the state and county portions of the Maryland tax, costing Maryland an estimated $42 million a year in revenue.

Montgomery County, which has the highest share of residents with out-of-state income, stands to be hardest hit. State officials estimate that the county is on the hook for about $115 million in refunds and interest, plus a loss of $24 million a year in tax revenue.

“I was hoping we would avoid this,” said County Executive Isiah Leggett (D), warning that the loss of revenue increases the likelihood of a major property tax increase next year. “This case cannot be overstated in terms of its significance.”

The ruling in Comptroller of the Treasury of Maryland v. Wynne also potentially affects thousands of other cities, counties and states with similar tax laws, including New York, Indiana, Pennsylvania and New York.

The case was brought by a Howard County couple, Brian and Karen Wynne, who reported $2.7 million in 2006 income, about half from their stake in Maxim Healthcare Services, a Columbia-based home-care and medical staffing company that does business in more than three dozen states.

The Wynnes paid $123,363 in Maryland state income tax and claimed an $84,550 Maryland credit for taxes paid in other states on income from Maxim.

Maryland taxes personal income at up to 5.75 percent. It also collects and distributes a piggyback income tax of up to 3.2 percent for each of the 23 counties and Baltimore City. But Maryland until now has offered no credit for the piggyback tax — in this case, the 3.2 percent the Wynnes owed to Howard County. The Wynnes and their attorneys contended that this represented about $25,000 in illegal double taxation.

The court was sharply divided, although not along the usual ideological lines. Justice Samuel A. Alito Jr. wrote the opinion for a majority that comprised him, Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Stephen G. Breyer and Sonia Soto­mayor.

Alito said the court has long recognized that the commerce clause has a “dormant” or underlying meaning. This holds that while the clause gives Congress the power to regulate commerce among the states, it also was intended to ensure that states would not pass laws to restrict interstate business.

Maryland’s tax law violates that implicit aspect of the commerce clause, Alito said.

State officials argued that under the due process clause of the Constitution, states have a historic right to tax the income of their residents, no matter where it is earned.

The piggyback segment is excluded from the tax credit, officials said, to ensure that all residents pay an equitable share for local government services such as schools and public safety.

But Alito said Maryland’s argument is flawed because states have long offered a similar credit for out-of-state taxes paid by corporations, who “also benefit heavily from state and local services.”

Alito called Maryland’s tax policy “inherently discriminatory,” saying it essentially operates as a tariff, or a tax designed to restrict trade.

Justices Ruth Bader Ginsburg, Antonin Scalia, Elena Kagan and Clarence Thomas dissented, with Ginsburg, Scalia and Thomas writing separate opinions.

Ginsburg, writing the principal dissent, said there was nothing in the Constitution that compelled Maryland — or any other state — to change its laws because of taxes paid by its residents elsewhere. .

In his dissent, Scalia called the dormant commerce clause “a judge-invented rule under which judges may set aside state laws that they think impose too much of a burden upon interstate commerce.” Scalia said he agreed that such a view of the clause has a long history. “So it does, like many weeds,” he wrote. “But age alone does not make up for brazen invention.”

Brian Wynne, who now lives in Carroll County and no longer works for Maxim, declined to comment Monday.

Michelle Parker, a spokeswoman for Comptroller Peter Franchot (D), said in a statement Monday that the office will “work diligently and in a timely manner to comply with the decision and enforce Maryland law consistent with the decision of the Supreme Court.” Parker added that the office is already reviewing about 8,000 refund claims dating back tjo 2006.

Money for the refunds will come from the state’s income tax reserve fund. The state will recoup that money by reducing state income tax revenue sent to localities each quarter over a period of two years, starting in June 2016.

Maryland’s General Assembly last year lowered the interest rate that applies to refunds from past years in order to cushion the blow in case the Supreme Court ruled against the state. The interest rate was reduced from 13 percent to the average prime rate during fiscal 2015, or about 3 percent.

Phishing Remains on the IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season

Monday, January 26th, 2015

Originally Published in IRS.GOV

WASHINGTON — The Internal Revenue Service today warned taxpayers to watch out for fake emails or websites looking to steal personal information. These “phishing” schemes continue to be on the annual IRS list of “Dirty Dozen” tax scams for the 2015 filing season.

“The IRS won’t send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise,” said IRS Commissioner John Koskinen. “I urge taxpayers to be wary of clicking on strange emails and websites. They may be scams to steal your personal information.”

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their returns or find people to help with their taxes.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

Stop and Think before Clicking

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help you protect yourself from email scams.

IRS Commissioner Predicts Miserable 2015 Tax Filing Season

Monday, December 22nd, 2014

Originally Posted on Forbes

Internal Revenue Service Commissioner John Koskinen warned that close to half the people trying to reach the IRS by phone might not get through during the upcoming 2015 tax filing season. “Phone service could plummet to 53%,” he told an audience of tax practitioners at the AICPA National Tax Conference in Washington, D.C. today. That would be down from an already unacceptable 72% during the 2014 filing season. The average hold time projection: 34 minutes! What’s to blame? Budget woes. “All we can do is try to maximize our services as well as we can; as well as we can is still going to be miserable. You really do get what you pay for,” he said.

Koskinen’s remarks followed National Taxpayer Advocate Nina Olson who was even gloomier:“The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate {in 2001}; I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.”

There are five key factors at play – complicating the upcoming filing season (that’s when you file your 2014 tax return). The IRS agency budget is the number one challenge, Koskinen said. The House has voted to cut the IRS budget for 2015 by $341 million, and the Senate has proposed to increase it by $240 million—that would still be 7% below 2010 funding levels.

In the meantime, Congress keeps passing laws that the IRS has to implement, namely the Affordable Care Act (“ACA”) and the Foreign Account Tax Compliance Act (“FATCA”). For example, Koskinen said the IRS requested $430 million in 2014 from Congress to implement the ACA but got zero, forcing it to take money out of enforcement and taxpayer services budgets.

This will be the first filing season with two major provisions from the Affordable Care Act –the premium tax credit and the individual shared responsibility payment–on Form 1040. National Taxpayer Advocate Olson said she’s very concerned about the IRS receiving accurate information from the health exchanges. It won’t be the IRS’s fault, but taxpayers will likely put the blame on the IRS. Koskinen touted the web pages that the IRS has created to help explain the ACA tax provisions.

Olson expects that implementation of FATCA, which affects taxpayers with accounts overseas, will also cause trouble this filing season. A new withholding requirement will mean there will be an issue with taxpayers trying to get refunds back in a timely manner. “If they are overseas, who are they going to call? There is not toll free number,” Olson said.

Then there are the tax extenders, 50-plus laws whose fate is uncertain. Congress has vowed to vote on the future of these laws in the upcoming lame duck session. But Koskinen warns that if the uncertainty continues into December, it could delay the start of the filing season and delay tax refunds.

Another factor Koskinen ticked off complicating this year’s filing season will be that the IRS is implementing a voluntary oversight program for return preparers. He said he’s still pushing for a mandatory oversight program. In the meantime, there will be a page on the IRS web site with a database of qualified tax preparers, including unregulated preparers who chose to participate in voluntary education programs. Attorneys, CPAs and enrolled agents, who all have separate licensing requirements, will also be listed.

Is there any promising news? Taxpayers are flocking to the IRS’s Where’s My Tax Refund feature where you can click and track the progress of your federal refund. They’re also using IRS direct pay, a secure online option for making tax payments (I use it; it really is quick and easy).

In the future (“some years from now”) Koskinen evisions a complete online tax filing experience. Taxpayers would have an account online where you could log on securely, see documents the IRS has received on your behalf, see your previous filings, and if there is an issue with your return, the IRS would contact you immediately—not two or three years down the line. “It’s not illusory,” he inists, adding that once more activities are moved online, the agency could sustain itself without annual budget increases.

The 2014 tax breaks you’ll be able to take

Thursday, December 18th, 2014

Originally Posted on CNN Money


Well, finally.

Congress on Tuesday night extended dozens of expired “temporary” tax breaks for 2014.

It took the Senate, by a 76 to 16 vote, until the week after Congress was supposed to adjourn to pass the bill, which the House had already approved.

The bill will now be sent to President Obama, who is expected to sign it.

The majority of tax breaks in the bill pertain to businesses, but a handful will affect individuals.

Among those who will benefit from the retroactive extension to January 1, 2014: Teachers who buy classroom supplies, mass-transit commuters, residents of states with no income tax, parents with kids in college, some homeowners and some retirees with IRAs.

The bill also includes a new provision that will benefit disabled adults.

What’s not clear yet is whether passage of the tax extenders bill so late in the year will force the IRS to delay when you can start filing your 2014 taxes, which typically begins in mid-January.

But whenever tax season starts, here are the extended tax breaks that you can take on your 2014 tax return:

Deduction for teachers’ expenses: This measure lets school teachers deduct up to $250 for the costs of classroom supplies that they buy with their own money. It’s available to all teachers, whether they itemize or not.

Equal treatment of commuting costs: All commuters may reduce their pre-tax income to account for their commuting costs. Under the law, however, those who drive to work and pay for parking are allowed to exclude more ($250 per month) than those who use mass transit ($130 per month). This measure again provides parity by also allowing mass transit riders to exclude $250 per month.

State and local sales tax deduction: If you itemize your taxes, this measure lets you deduct the state and local sales taxes you’ve paid in lieu of state income taxes.

The deduction can be a boon for itemizers who live in Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Those are the seven states that don’t impose an income tax but where residents pay sales taxes, either at the state or local levels.

Tuition deduction: Among the many education tax breaks on the books, this one is available to all tax filers, whether you itemize or not. With it, you may deduct up to $4,000 in qualified tuition, fees and related expenses for post-secondary education, such as college and graduate school. The deduction may be taken for yourself, your spouse or your dependents.

But there are income limitations, and if you take it you may not take other types of education tax breaks, such as the Lifetime Learning Credit. Your deduction also is reduced by any grants and scholarships received to pay for school, as well as any money withdrawn from tax-advantaged, education savings accounts.

Deduction for mortgage insurance premiums: If you only put down a small amount to buy a home you may be required to pay for mortgage insurance to protect the lender against default. This tax break lets you deduct the cost of your premiums if you itemize your deductions.

Income exclusion for mortgage debt that’s been forgiven: When you sell your home for less than what you owe the bank or your home is foreclosed, the bank may agree to forgive the remaining debt you owe. But the IRS typically treats that forgiven debt as taxable income to you. This tax break lets you exclude it from your income.

Tax-free IRA withdrawals for charity: With this measure, anyone over 70-1/2 may take tax-free distributions of up to $100,000 from a traditional IRA if the money is distributed directly to an eligible charity.

While retirees can’t also take a deduction for that contribution, the money won’t count as income. So it won’t hurt when it comes to other taxes, such as those imposed on Social Security benefits when income exceeds a certain level, said Mark Luscombe, principal federal tax analyst for tax publisher WoltersKluwer, CCH.

Tax-free savings for people with disabilities: Attached to the extender bill is the Achieving a Better Life Experience (ABLE) Act. That act will permit people who were disabled before the age of 26 — as well as their family and friends — to contribute up to a combined total of $14,000 a year to an ABLE account.

Earnings would grow tax free and the money would not disqualify the disabled person from receiving federal assistance benefits such as Medicaid and Supplemental Security Income so long as it is used to pay for housing, transportation, education and wellness.

Obamacare Tax Problems to Watch Out For

Tuesday, December 16th, 2014

Originally Published in ACCOUNTINGTODAY.COM

Affordable Care Act-related tax issues await CPAs and those who prepare their own returns this upcoming tax season, according to the National Conference of CPA Practitioners.

Medical Mysteries

There has been very little clarity about many ACA policies, leaving significant opportunities for error as people try to carve out their own interpretations. Businesses and individuals will be required to be compliant, but the reality remains that many may not know how to go about achieving this goal. Here are some ACA tax issues that NCCPAP feels CPAs and their business and individual clients should know about now.

Employer Shared Responsibility

Effective Jan. 1, 2015, one of the main provisions of the Affordable Care Act—employer shared responsibility—will begin. This means all employers with 100 or more employees are required to offer health insurance. Further, all employers will have required reporting for 2015. All employers will need to file the Form 1095-C with both the IRS and their employees by the end of January 2016. This form will provide essential information for employees to prepare their taxes. Specifically, it will verify the months that each employee had minimum essential coverage.

Minimum Essential Coverage

There are no mandatory ACA employer filing requirements for 2014. The IRS is telling CPAs to use their best judgment to determine if a person had minimum essential coverage, which is a bronze plan, but also requires an individual to have had coverage for all 12 months.

Careful Before Checking the Box

If taxpayers are preparing their own returns, many may mistakenly check the box that affirms they did have minimal essential coverage, even in cases when that is not accurate. This is because individuals either don’t know what minimal essential coverage entails, or are intentionally trying to avoid a penalty

Avoid the Penalty

For example, those who had insurance for half the year with an employer, but who were unemployed for half the year without health insurance, might think they had minimal essential coverage. In this situation they would be wrong since each person is required to have coverage for all 12 months to avoid paying a penalty. 

Truth or Dare

There is no way the government will be able to verify whether or not a person is telling the truth because employers have no mandatory reporting requirements for 2014. Even if someone had purchased an individual plan on their own, since the health insurance companies have no reporting requirements for 2014, there is no way for the government to verify whether someone had an individual plan or had no insurance at all.

Watch the Timeframe

If someone purchased health insurance on the exchange, the government would be able to prove the months they were covered with the exchange-purchased insurance through Form 1095-A. For example, if an individual were uninsured for six months and covered with exchange-purchased insurance for six months, the government would only be able to see the timeframe the individual had exchange-purchased coverage. Essentially this person would not meet the minimal essential coverage guidelines and would be subject to a financial penalty—that is if the government had documentation to prove the gap in coverage, which it doesn’t.

Religious Exemptions

There is a lot of concern and confusion regarding all of the various ACA exemptions. Some are very clear: if you’re a member of a religious sect, such as the Amish, or a member of a federally recognized Native American tribe, you are exempt from minimal essential coverage. Some Catholic religious orders like nuns don’t need to have contraception coverage. Those are the basic and obvious exemptions.

Fuzzy Wording

Not all exemptions are that easy to interpret, according to Stephen Mankowski, CPA, who is the Tax Policy Chair for NCCPAP, and a partner in the Bryn Mawr, Pa., accounting practice, EP Caine & Associates. “Here is where it gets fuzzy,” Mankowski said. “You may be eligible for an exemption if you had financial difficulties, received shut-off notices, experienced the death of a close family member or were in prison for part or all of the year. In these situations, so much is left up to the taxpayer for interpretation. For example, how does one define financial difficulties, or a ‘close’ family member?  If you claim either of those, it could land you a cushy three-year exemption, according to ACA guidelines. Of course proving these in the event of an IRS audit could cause problems down the road.” Mankowski said. “There are many more exemptions beyond what I’ve listed here that will cause confusion to CPAs and the American taxpayer.”

Federal Repayments

“The repayment of premium tax credits is starting to get more attention,” said NCCPAP President Sandra G. Johnson, CPA, who runs a practice under her name out of Bellmore, N.Y.  “This is a conflict that has been underreported for a long time,” Johnson stated. “Now people are realizing for the first time that they had a premium discount for the health insurance premiums they paid in 2014 because their premium cost was based on their 2012 income. When their income increased in 2014, their premium tax credit decreased. These individuals are now going to owe the government money, and payback will occur through their 2014 federal tax return. More and more taxpayers will be faced with this sad reality.” Johnson is referring to how many taxpayers did not understand that their reasonable premiums were due to a government-offered discount based on the income they stated on their application (in many cases from their 2012 taxes). A higher 2014 income means taxpayers must now pay the government back for that premium discount that was initially credited to them if they are found ineligible.