Healthcare Premium Tax Credit Reporting

Under the Affordable Care Act (ACA), over 4.6 million taxpayers received a premium tax credit (PTC) in 2014 and 2015. In FS-2016-5 the IRS explained various healthcare tax credit requirements.

The premium tax credit is available for families and individuals with income from 100% to 400% of the federal poverty line. The 2015 qualified income amount for a family of four is up to $94,400.

When setting up insurance under the ACA, a taxpayer may estimate his or her income. The available premium tax credit may be paid in advance if the taxpayer prefers. If you receive a premium tax credit paid to the insurance company, you later will need to file IRS Form 8962 “Premium Tax Credit” with your tax return. The amount of credit that you received must be reconciled through this form. This calculation may require payment of an additional premium or add to your tax refund.

The IRS offers specific examples for a family of four. For example, assume that a married couple is filing a joint return and selected a “benchmark qualified health plan” on an approved ACA exchange. This family of four has income equal to 209% of the 2015 federal poverty line. The categories and amounts are listed by the IRS in the explanation letter.

IRS Commissioner John Koskinen reported to Congress that 4.6 million taxpayers needed to file Form 8962 in 2015 in order to reconcile their 2014 premium tax credit. Over 3 million did file the required form, but 976,000 taxpayers who received a premium tax credit failed to include Form 8962 with their return.

If these persons do not file an amended return, they may lose their 2016 premium tax credit. Their monthly plan will continue to be available, but they may need to make the full premium payment each month to keep their medical insurance active. This will be a major hardship for lower-income persons.

Koskinen’s letter to Congress stated, “This is the first year for this new provision, and we expect that taxpayers will continue to better understand this process as it becomes routine. We are committed to learning from this experience so that we can improve our processes and enhance the support we provide in the future.”

The Affordable Care Act also mandates healthcare coverage in 2016, with limited exceptions. If you fail to obtain the qualified healthcare coverage, there is a penalty payment for the greater of $695 per adult or 2.5% of your income over the filing threshold.

Editor’s Note: Most of the taxpayers who received the premium tax credit and did not file Form 8962 are low-income persons. They may need to contact a tax preparer to file an amended return and restore their healthcare credit for 2016. There are several organizations that provide assistance, including the Voluntary Income Tax Assistance (VITA) program.

Where’s My Refund?

By February, the IRS will be processing millions of tax returns and sending refunds to taxpayers. IRS Commissioner John Koskinen plans to issue 90% of tax refunds within 21 days after you file.

Koskinen suggests that taxpayers should use the “Where’s My Refund?” feature on IRS.gov to monitor their status. Koskinen stated, “As February approaches, more and more taxpayers want to know when they can expect their refunds. There are not any secret tricks to checking on the status of a refund. Using IRS.gov is the best way for taxpayers to get the latest information.”

The “Where’s My Refund?” is normally updated overnight. Therefore, you should check on your status only one time per day. With an electronic tax return, your status will be available within 24 hours. If you file a printed tax return, the delay may be four weeks.

The “Where’s My Refund?” feature displays your tax return and refund status. It will indicate (i) Return Received, (ii) Refund Approved or (iii) Refund Sent.

Another option available for iPhones and Android phones is the “IRS2Go” app. You may download this app and check your refund status. In order to obtain information, you will need some of the information or numbers from your tax return.

Koskinen reminds taxpayers that calling the IRS about refunds will generally not be helpful. IRS staff do not research the status of a refund unless the “Where’s My Refund?” app directs you to call the IRS.

Taxpayers should also consider using the IRS Free File program. Statistics show that 70% of taxpayers have incomes under $62,000 and may use the free commercial tax preparation software on IRS.gov. This is a very convenient and safe way to complete your tax return for this year.

Focus on Retirement Plans

On January 29 the Senate Finance Committee held a hearing on increasing benefits from retirement plans. Chairman Orrin Hatch (R-UT) reported “good news and bad news.”

The good news is that there are substantial savings in retirement plans. Hatch reported, “Under the current system, millions of Americans have managed to save trillions of dollars for retirement. In specific terms, thanks in large part to policies Congress has enacted over the years, American workers have saved more than $4.7 trillion in 401(k) plans and more than $7.6 trillion in IRAs. That’s more than $12 trillion in total, more than double the amount workers had saved in 2000, despite the Great Recession, the market downturn in 2008 and historically low interest rates since that time.”

However, Hatch reports the “bad news” of great future fiscal pressure on programs such as Medicare and Social Security. With the “strain on the federal budget,” it is important for everyone to supplement federal benefits with a private retirement plan.

Ranking Member Ron Wyden (D-OR) expressed concern – too many retirees have modest IRAs and 401(k)s and many have no pension or savings. He supported a White House proposal to “automatically enroll workers” in a 401(k) or IRA plan. His home state of Oregon is one of three states with an “auto-IRA” requirement. Every worker who does not opt out will have a retirement plan.

Editor’s Note: In addition to IRAs and 401(k)s, there are 403(b) plans for nonprofits, defined benefit plans and other defined contribution plans. Total plan value for all qualified plans is over $15 trillion. If plan owners with substantial balances have “charitable receptivity,” they may consider a qualified charitable distribution (QCD). The QCD may save income taxes by allocating part or all of their 2016 required minimum distribution to a favorite charity. In addition, perhaps $10 trillion will be income in respect of a decedent (IRD) for the estates of these plan owners. They may select charities or a CRT as a designated beneficiary. The “Give It Twice” testamentary CRT funded with an IRA benefits children for a term of 20 years and then charity. Because the CRT and charitable remainder recipient are tax-exempt, no income tax is paid on the IRA balance.

Applicable Federal Rate of 2.2% for February—Rev. Rul. 2016-4; 2016-6 IRB 1 (20 Jan 2016)

The IRS has announced the Applicable Federal Rate (AFR) for February of 2016. The AFR under Section 7520 for the month of February will be 2.2%. The rates for January of 2.2% or December of 2.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2016, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.