The October 10, 2014 Kiplinger Tax Letter predicts that filling out a tax return may be more difficult next April because of the health reform law. For example, if you received a subsidy for your premiums, you will have to reconcile the subsidy received in advance with the actual credit you were entitled to, using Form 8962. If you decided to go without health insurance, you may owe a tax unless you are eligible for an exemption. Fortunately, there are numerous exemptions: people for whom healthcare is too expensive, which includes people whose share of premiums exceeds 8% of the household’s AGI. Also, filers who went without coverage for less than three months will qualify, as will those with household incomes below the thresholds for filing a return: $10,150 for individuals, $13,050 for head of households and $20,300 for joint filers. There are also exemptions for those who can show that a hardship forced them to go without coverage. There are 14 qualifying circumstances, plus a general catch-all hardship exception if none of the other 14 fit.
Taxpayers will report their health coverage exemptions on Form 8965. If seeking a hardship exemption, you must apply through the exchange and, if approved, you will receive a code number that will be entered on Part I of the Form 8965. Most other exemptions can be entered on Form 8965 when filing the return, according to Kiplinger. In the instructions to Form 8965, there is a worksheet for calculating the tax that will be owed each month they and their dependents are uninsured and not eligible for an exemption. They will transfer this amount to Form 1040. The tax for being uninsured is typically the higher of two amounts—the basic penalty or an income based levy. Here is an interesting note: the IRS has limited remedies to collect this tax. It cannot use liens and levies, so it can only offset tax refunds. It cannot charge interest on the unpaid balance. This implies that if you are a “tax payer”, you may never pay a healthcare tax, assuming you always owe a balance in April. It also reminds me of a good decision made many years ago to leave the tax preparation business.
Taxes can be frustrating; life can be frustrating. You can’t do a lot about taxes other than plan the best way to avoid paying more than your share. Life is different. You can choose the path you follow. Even after making poor choices, the door is never closed. Carrie Underwood has a new song, “Something in the Water”. Some of the lyrics include this witness: “I was all out of hope and all out of fight. Couldn’t fight back the tears so I fell on my knees, saying ‘God, if you’re there, come and rescue me.’ Felt love pouring down from above. Got washed in the water, washed in the blood. And now I’m changed and now I’m stronger.” I know the feeling. My mom died recently. After a long night at the hospital when she left us, I was resting on a couch next to a window. As I lay there, I felt a ray of sun wash over my body and I knew that it was mom telling me that all was good and she was where she wanted to be. What a wonderful peaceful touch from one person who always loved me unconditionally.
Although this information has been gathered from sources believed to be reliable, it cannot be guaranteed. This material is intended for informational purposes only and should not be construed or acted upon as individualized tax, legal or investment advice. FSC Securities Corp does not offer tax or legal advice. Securities, insurance and investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment advisor 3416 North Blvd, Alexandria, LA 71301, (318) 448-3201. The views expressed are not necessarily the opinion of FSC Securities Corporation.