PTC Litigation + ISRP ( 5000A)

Transcription

1 Chapter 3 PTC Litigation + ISRP ( 5000A) 1 How PTC is relevant to all preparers? Client received Form 1095-A If received PTC in advance, need Form 8962 May need Form 8962 anyway Clients ask you about it for some reason Help at VITA site Want to better understand the 4980H, Employer Shared Responsibility Payment Interested in mastering complex areas of the tax law! 2

2 Circuit conflict regarding PTC and Exchanges Two decisions 7/22/14: Halbig v. Burwell, No (DC Cir.) King v. Burwell, No (4 th Cir.). One more 9/30/14: State of Oklahoma v Burwell, (ED OK) 4 The Issue Are individuals in states w/o an Exchange eligible for PTC? Are HHS and IRS regs valid that treat state exchange as also meaning federal exchange? 5

3 The answer so far Not valid Gov t lost Halbig (lower court said yes) Oklahoma (District Court case) Valid Gov t won King (lower court said yes) 6 Status of dispute 11/7/14 USSC agrees to hear King case (where gov t won) Relevance: No need for DC appeals to rehear Halbig 11/10/14 issued motion to hold in abeyance Likely no resolution until mid-2015 Practitioner dilemma - If gov t loses - Filing returns before and after the USSC decision / amended returns? 8

4 Administration says White House and DOJ people still eligible for PTC Congress intended for every eligible American to have access to tax credits that would lower their health care costs regardless of whether it was state officials or federal officials who are running the marketplace. I [press secretary] think that is a pretty clear intent of the congressional law. 7/22/14 9 California relevance Good news Covered California is a state Exchange Bad news potential if gov t loses, unlikely to be able to maintain PTC regime. 12

5 13 Form 1040 and ISRP Line A - Line EZ - Line 11 14

6 Line relevant to all individual clients For many will be easy to complete For some may be challenging Many clients likely to ask what it is and if they owe it A Penalty 10/23/13 16

7 Monthly determinations! 17 (1) Does individual have MEC? 18

8 Individual Really means family A-1(d)(4) individuals for whom the taxpayer properly claims a deduction for a personal exemption under 151 for the year. 19 Minimum Essential Coverage (MEC) HHS: type of coverage an individual needs to have to meet the individual responsibility requirement under the Affordable Care Act. This includes individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE and certain other coverage. 20

9 MEC 5000A(f) and regulations 21 IRS website has helpful chart! 25

10 IRS MEC chart - continued 26 IRS MEC chart - continued 27

11 If not addressed on chart Check HHS website and 5000A regs. Example: 28 MEC reminders Generally, includes employersponsored coverage (FAQ14). Including retiree health plans (FAQ17) 1 day = full month of MEC 29

12 Can ask employer about coverage Really more for PTC to know if affordable and minimum value (2) If no MEC, does exemption apply? 31

13 A B Your payment would exceed 8% of household income A-3(e); 8% adj annually 1 or 2 months. If 3 or more, n/a 34 NC If don t need to file, ok. If file, include Notice only applies if person may not be claimed as dependent by another individual. C 35

14 D E 36 F If in jail for one day of the month, exempt for that month. NC What does application look like? (see next slide) 37

15 6 pages Mail to HHS Possible to appeal if denied Takes 1-2 weeks 38 NC G G 39

16 continued E NC NC 40 continued NC NC More on Hardship exemptions from HHS: 41

17 20 pages! 42 Instructions to Form

18 Cautions May need to apply in advance via HHS Applications on their website Get a number that goes on Form 8965 See pages 3-77 to 3-80 for links Others just claimed on Form 8965 Exemption rules can get complex Generally, look month by month 46 Exemptions more resources Form 8965 (1 page) and instructions (12 pages) HHS IRS Notice (11/21/14) - list of 5000A hardship exemptions that may be claimed on return without obtaining a hardship exemption certification from Marketplace. [+ TD 9705 (11/26/14)] See links in Chapter 3 (IRS and HHS) 47

19 Form 8965, Health Coverage Exemptions Relates to 5000A penalty. Includes worksheets to calculate that penalty (ISRP)

20 (3) If no MEC & no exemption, how to compute penalty? 50 flat dollar amount /23/13 51

21 Household Income 5000A (c)(4)(b) MAGI = AGI exclusion + taxexempt income NOTE for PTC, also include non-taxed Social Security Includes MAGI of spouses + those claimed as dependent if required to file a return. 52 ISRP Example 1 Joyce is single with no dependents. Household income (AGI + any 911 exclusion+ any tax-exempt interest) is $60,000. Joyce could only purchase self-only coverage from employer at a total cost to her of. Joyce did not purchase this coverage or any coverage in the marketplace. 54

22 $4,800 Joyce 55 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Joyce A x 56

23 Joyce example continued 0 Result for Joyce: No coverage for 2014 No ISRP Could she have obtained affordable coverage in the Marketplace? Yes, she can obtain insurance through the Marketplace, but not a premium tax credit. Joyce s income > 400% FPL ($11,670 x 4) If her income were instead $30,000, she would qualify for a PTC because cost of ER-insurance exceeds 9.5% of her income ( > $2,850) Joyce could have purchased insurance directly from a provider (no need to use Marketplace since not eligible for a PTC). The HHS website notes that an employee can provide a employer Coverage Tool (pdf document) to help the employee know if the employer coverage is affordable and meets the minimum value standard ISRP Example 2 Susan and Lee are married and file as MFJ for dependent children. For 2014, Susan could purchase self-only coverage under a plan offered by her employer at a cost to her of. She could also purchase coverage for the entire family through her employer at a cost of $20,000. No coverage was purchased. Household income is $90,000 for

24 $7,200 Susan Lee Child 1 Child 2 Should be $20,000 not per A- 3(e)(3)(ii)(B) A-3(e) Individuals with no affordable coverage Should be $20,000 not per A- 3(e)(3)(ii)(B). 60

25 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Lee A x Child A x Child A x Let s assume no other exemption applies to Susan. 61 * * For $204/month/individual capped at $1,020 per month for family of 5 or more 62

26 Susan x x x x x x x x x x x x x $90,000 $20,300 $69,700 $ 697 $8,364 $ 697 $2,448 $ Family example continued $697 Result for Susan, Lee and two children: No coverage for 2014 ISRP for Susan of $697 (will be higher for 2015) If they obtained coverage in the Exchange, they would potentially be eligible for a PTC because household income is below 400% of the FPL ($94,200). However, because employer offered coverage to family and Susan s self-only was affordable, no one in the family is eligible for PTC. No deduction for the ISRP paid! 64

27 What if no employment coverage offered? How to see if non-affordable exemption applies. Determine affordability based on Single lowest cost bronze plan available to taxpayer in the marketplace, reduced by any PTC they could have claimed ( pretend PTC ) Bronze plan must be based on Their rating area What would cover the family other than those otherwise exempt or eligible for employer-sponsored plan Their age and tobacco use 65 Challenges of calculating your pretend PTC What is the cost for your second lowest silver plan? May be difficult to get that information. If household income > 400% FPL No pretend PTC 66

28 Liability for dependents A-1(c)(2) If dependent liable, paid by individual who meets 152 rule to claim the dependent even if don t actually claim them. If multiple individuals can claim the dependent and no one does, liability for ISRP is with individual with priority under 152. Special rules for adoptions and foster children. Joint return both spouses jointly liable for any IRSP 67 Getting ready for Line 61 Information needed Identification of everyone in Shared Responsibility Payment Family ( A-1(d)(17)). Whether each had MEC. REWORD Did you and everyone in your 1040 family have health insurance for every month? 68

29 If no MEC for everyone, need to know Does exemption apply? Does that exemption require applying to HHS? If owe ISRP, may also need: Ages of dependents (so know how many are 18 or older). If a child turned 18 during the year, need to know the date. Complete Form 8965 worksheets 69 Due diligence and ISRP How many questions do you need to ask to complete this Form 1040 line and possibly Form 8965 and worksheets to compute ISRP? A 1040EZ Check the box only if all members of family had coverage all months of year. 70

30 One possibility IRS Pub 5156 Share IRS info with client. Let gov t be part of the message. Tell them about: New line 61 on 2014 Form PTC and relevance to them and family. Do I have all of the guidance I need? 73

31 Missing a link to regs issued 11/26/