Mandatory Health Insurance Starts This Month—Are You Ready?

Tax Attorneys at Ainer & Fraker, LLP Discuss the Mandatory Health Insurance Requirements of the Affordable Care Act (Obamacare) in 2014.

Beginning in January 2014, everyone, with certain exceptions, is required to have minimum, essential health care insurance. This issue has received a significant amount of press coverage recently, both negative and positive. Regardless of your opinion related to the issue, the mandatory insurance requirement, together with the accompanying penalties for not being insured, premium assistance credits, and insurance subsidies, all begin in 2014. The new marketplace, also called exchanges, where insurance policies can be purchased, have debuted already, but with mixed success. These new provisions are all part of the Affordable Care Act (sometimes referred to as Obamacare) that are being phased in over a number of years.

How this will affect you and your family will depend upon a number of issues:

Already insured – If you are already be insured through an employer plan, Medicare, Medicaid, the Veterans Administration, or a private plan that provides minimal, essential health care, then you will not be subject to any penalties under this new law.

Those exempt from the mandatory insurance requirement – The following individuals are exempt from the insurance mandate, and will not be subject to a penalty for being uninsured:

Individuals who have a religious exemption

Those not lawfully present in the United States

Incarcerated individuals

Those who cannot afford coverage based on formulas contained in the law

Those who have an income below the federal income tax filing threshold

Those who are members of Indian tribes

Those who were uninsured for short coverage gaps of less than three months

Those who have received a hardship waiver from the Secretary of Health and Human Services, who are residing outside of the United States, or who are bona fide residents of any possession of the United States.

Help for those who can’t afford coverage – Individuals and families whose household income is between 100% and 400% of the federal poverty level will qualify for a varying amount of subsidies to help pay for the insurance in the form of a Premium Assistance Credit. The lower the income, the more substantial the credit, which slowly phases out as the income increases, and is totally eliminated when the income reaches 400% of the poverty level. For those in the lower income levels, the subsidy will usually cover the bulk of the insurance costs.

To qualify for that credit, the insurance must be acquired from an insurance exchange operated by the individual’s or family’s resident state, or by the federal government when the state does not have an exchange. These exchanges have been up and running (more or less) since October 1, 2013, allowing individuals and families to apply for coverage which will become effective as of January 1, 2014.

There has been considerable negative press related to the federal exchange. The federal Internet site has not been functioning efficiently, but the administration says the problems will be corrected so everyone who needs to, can apply. Individuals who reside in states with their own exchange will use their state’s exchange and should not be concerned with the federal exchange. In general, the state-run exchanges seem to be operating smoother than the federal exchange, but some of the state exchanges have also had their problems. Some insurance companies offering insurance through an exchange also offer assistance in signing up through the exchange without going through the website. But be cautious—to be eligible for a subsidy, the insurance must be purchased through an exchange. If you purchase a policy directly from an insurance company without going through an exchange, you won’t be qualified for a subsidy, regardless of your income level.

It is important to note that the subsidy is really a tax credit based upon family income. It can be estimated in advance, and used to reduce the monthly insurance premiums; it can be claimed as a refundable credit on the tax return for the year; or it can be some combination of both. However, it is based upon the current year’s income and must be reconciled on the tax return for the year. If too much was used as a premium subsidy, some portion may need to be repaid. If there is an excess, it is refundable.

If household income is below 100% of the poverty level, the individual or family qualifies for Medicaid.

Penalty for noncompliance – The penalty for noncompliance will be the greater of either a flat dollar amount or a percentage of income:

For 2014, $95 per uninsured adult ($47.50 for a child), or 1 percent of household income over the income tax filing threshold

For 2015, $325 per uninsured adult ($162.50 for a child), or 2 percent of household income over the income tax filing threshold

For 2016 and beyond, $695 per uninsured adult ($347.50 for a child), or 2.5 percent of household income over the income tax filing threshold

Flat dollar amounts – The flat dollar amount for a family will be capped at 300% of the adult amount. For example, in 2014, the first year for the penalty, the maximum penalty for a family will be $285 (300% of $95). But for 2016, the maximum penalty jumps to $2,085 (300% of $695). The child rate will apply to family members under the age of 18.

Overall penalty cap – The overall penalty will be capped at the national average premium for a minimal, essential coverage plan purchased through an exchange. This amount won’t be known until a later date.

Please Contact a Tax Attorney at Ainer & Fraker, LLP if you have any questions as to how the new insurance requirements of the Affordable Care Act (Obamacare) will affect you.

 

IRS Form 8938 – Who is Required to File?

According to the IRS, certain U.S. taxpayers holding specified foreign financial assets with an aggregate value exceeding $50,000 will report information about those assets on new Form 8938, which must be attached to the taxpayer’s annual income tax return. Higher asset thresholds apply to U.S. taxpayers who file a joint tax return or who reside abroad (see below).

IRS Form 8938 reporting applies for specified foreign financial assets in which the taxpayer has an interest in taxable years starting after March 18, 2010.

Upon issuance of regulations, FATCA may require reporting by specified domestic entities. For now, only specified individuals are required to file IRS Form 8938.

  • If you do not have to file an income tax return for the tax year, you do not need to file Form 8938, even if the value of your specified foreign assets is more than the appropriate reporting threshold.
  • If you are required to file Form 8938, you do not have to report financial accounts maintained by:
  • a U.S. payer (such as a U.S. domestic financial institution),
  • the foreign branch of a U.S. financial institution, or
  • the U.S. branch of a foreign financial institution.

Refer to IRS Form 8938 instructions for more information on assets that do not have to be reported.

You must file Form 8938 if:

1. You are a specified individual.

A specified individual is:

A U.S. citizen
A resident alien of the United States for any part of the tax year (see Pub. 519 for more information)
A nonresident alien who makes an election to be treated as resident alien for purposes of filing a joint income tax return
A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico (See Pub. 570 for definition of a bona fide resident)
AND

2. You have an interest in specified foreign financial assets required to be reported.

A specified foreign financial asset is:

Any financial account maintained by a foreign financial institution, except as indicated above
Other foreign financial assets held for investment that are not in an account maintained by a US or foreign financial institution, namely:
Stock or securities issued by someone other than a U.S. person
Any interest in a foreign entity, and
Any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person.
Refer to the Form 8938 instructions for more information on the definition of a specified foreign financial assets and when you have an interest in such an asset.

AND

3. The aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you:

Unmarried taxpayers living in the US: The total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year
Married taxpayers filing a joint income tax return and living in the US: The total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year
Married taxpayers filing separate income tax returns and living in the US: The total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
Taxpayers living abroad. You are a taxpayer living abroad if:
You are a U.S. citizen whose tax home is in a foreign country and you are either a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire tax year, or
You are a US citizen or resident, who during a period of 12 consecutive months ending in the tax year is physically present in a foreign country or countries at least 330 days.
If you are a taxpayer living abroad you must file if:

You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
You are filing a joint return and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
Refer to the Form 8938 instructions for information on how to determine the total value of your specified foreign financial assets.

Reporting specified foreign financial assets on other forms filed with the IRS.

If you are required to file a Form 8938 and you have a specified foreign financial asset reported on Form 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, or Form 8891, you do not need to report the asset on Form 8938. However, you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets.

Even if a specified foreign financial asset is reported on a form listed above, you must still include the value of the asset in determining whether the aggregate value of your specified foreign financial assets is more than the reporting threshold that applies to you.

Please Contact an International Tax Attorney at Ainer & Fraker, LLP if you have questions about the IRS Form 8938 Statement of Specified Foreign Financial Assets and its reporting requirements.