Failing to file 2014 tax returns will prevent advance payments in 2016
If you received advance payments of the Premium Tax Credit in 2014 under the health care law , you should file your 2014 tax return as soon as possible this summer — even if you missed the April 15 deadline or received an extension to file until Oct. 15. This will ensure you can timely receive advance payments next year from your Health Insurance Marketplace.
When you purchased health coverage for 2014 through the Marketplace, if you chose to have advance payments of the Premium Tax Credit sent directly to your insurer to lower your monthly insurance premiums, you are required to file a tax return to reconcile advance payments even if you are otherwise not required to file.
If advance payments of the Premium Tax Credit were paid on behalf of you or an individual in your family in 2014, and you do not file a 2014 tax return, you will not be eligible for advance payments of the Premium Tax Credit or cost-sharing reductions to help pay for your Marketplace health insurance coverage in 2016. This means you will be responsible for the full cost of your monthly premiums and all covered services. In addition, we may contact you to pay back some or all of the 2014 advance payments of the Premium Tax Credit.
Because Marketplaces will determine eligibility for advance tax credit payments and cost-sharing reductions for the 2016 coverage year this fall, it will substantially increase your chances of avoiding a gap in receiving this help if you file your 2014 tax return with Form 8962, Premium Tax Credit , electronically as soon as possible.
To repeat, if you missed the April 15 deadline or received an extension to file until Oct. 15, you should file your return as soon as possible. You should not wait to file. File now to reconcile any advance credit payments you received in 2014 and to maintain your eligibility for future premium assistance.
The IRS is currently sending Letter 5591 to taxpayers, who received 2014 advance payments but have not yet filed their tax return, to remind them of the importance of filing their 2014 federal tax return along with Form 8962. The letter encourages taxpayers to file within 30 days of the date of the letter to substantially increase the chance of avoiding a gap in receiving assistance with paying Marketplace health insurance coverage in 2016.
You must complete Form 8962 to reconcile your advance credit payments with the Premium Tax Credit you are eligible to claim on your return. You should have received Form 1095-A, Health Insurance Marketplace Statement , from your Marketplace. This form provides information you will need when completing Form 8962. If you have questions about the information on Form 1095-A for 2014, or about receiving Form 1095-A for 2014, you should contact your Marketplace directly.
Remember that filing electronically is the best and simplest way to file a complete and accurate tax return as it guides you through the process and does all the math. For more information about the Affordable Care Act and the premium tax credit, visit IRS.gov/aca.
The Supreme Court’s highly anticipated 6-3 decision Thursday in King v Burwell found that premium tax credits under Code Sec. 36B, also known as health insurance subsidies, are not limited solely to taxpayers who live in states that have established their own health insurance exchange but are also available to taxpayers residing in states that have a federal exchange.The court, while acknowledging that the challengers’ plain-meaning arguments were strong, found the statutory language ambiguous in light of the context and structure of Code Sec. 36B, as well as the role of the subsidies in the Affordable Care Act as a whole. With these considerations in mind, the court concluded that allowing the subsidies for insurance purchased on any exchange was consistent with the purpose of the ACA.
Background on ACA Provisions
The ACA’s “individual mandate” requires non-exempt U.S. citizens and legal residents for tax years ending after Dec. 31, 2013 to maintain minimum essential health insurance coverage (for example, government-sponsored programs, eligible employer-sponsored plans, and plans purchased in the exchange) or pay a penalty. However, there are a number of situations in which individuals are exempt from the penalty, including where there is no affordable health insurance coverage option available.
The tax credit is designed to make health insurance affordable for taxpayers who meet certain qualifying requirements. It is available for individuals who purchase affordable coverage through exchanges.
States may establish and operate exchanges or the federal government may establish and operate an exchange in place of the state where a state has chosen not to do so.
Exchanges make premium assistance payments on the individual’s behalf to health plans, based on information available at the time of enrollment; then, at return time, the individual reconciles the actual credit that he is due with the amount of the subsidy payments that were made.
In describing the premium assistance amount, Code Sec. 36B(b)(2)(A) refers to “the monthly premiums for…qualified health plans offered in the individual market…which were enrolled in through an Exchange established by the State” under §1311.
The issue is that in May 2012, the IRS issued regs that interpreted Code Sec. 36B to allow credits for insurance purchased on either a state or federally established exchange. Specifically, the regs provide that a taxpayer may receive a tax credit if he is enrolled in one or more qualified health plans through an exchange, which the IRS defined as an exchange serving the individual market for qualified individuals, regardless of whether the exchange is established and operated by a state (including a regional exchange or subsidiary exchange) or by the Department of Health and Human Services.
To date, only 13 states and the District of Columbia have actually created exchanges. By making the credits more widely available, the reg gives the individual and employer mandates—key provisions of the ACA—broader effect than they would have if credits were limited to state-established exchanges.
Taxpayers brought suit against IRS and HHS, arguing that Reg. § 1.36B-1(k) invalidly interpreted Code Sec. 36B(b)(2)(A). The taxpayers, who do not want to purchase health insurance, live in a state that has a federal exchange. If they did not receive the subsidies, their coverage would be considered unaffordable and they would be exempt from the individual mandate.
On Nov. 7, 2014, the Supreme Court agreed to resolve a Circuit split between the Fourth Circuit upholding the reg, and the D.C. Circuit invalidating the reg, by reviewing the Fourth Circuit case, King v. Burwell,
Supreme Court Upholds Subsidies
The Supreme Court, in a 6-3 decision, upheld the subsidies for health insurance purchased on a federal exchange (see Supreme Court Upholads ACA Subsidies and Serious Implications from the Supreme Court’s ACA Decision). The majority opinion was delivered by Chief Justice John Roberts and joined by Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan.
The majority began by providing a brief overview of the reforms adopted by the ACA in order to expand coverage in the individual health insurance market. According to the majority, the three primary reforms, which it described as “interlocking,” were: (i) barring insurers from taking a person’s health into account when deciding whether to sell health insurance or how much to charge; (ii) requiring each person to maintain insurance coverage or make a payment to IRS; and (iii) giving tax credits to certain people to make insurance more affordable. The majority then framed the issue before it as “whether the Act’s interlocking reforms apply equally in each state no matter who establishes the state’s exchange.” Looking to a number of the health care shortcomings that the ACA was designed to address, and considering the consequences of a contrary ruling, the court found it “implausible” that Congress intended for the ACA to operate as the taxpayers argued.
The court found that the typical framework for analyzing an agency’s interpretation of a statute (i.e., a Chevronanalysis, which entails a two-part inquiry as to whether the statute is ambiguous and, if so, whether the agency’s interpretation is reasonable) was predicated on the notion that when a statute is ambiguous, such reflects an intent on the part of Congress for the relevant agency to resolve the ambiguities. The court noted that “[i]n extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.”
In this case, the tax credits are one of the key ACA reforms, costing billions of dollars and affecting the price of health insurance for millions of people, and the Court found it unlikely that Congress intended to assign to an agency the decision of whether the credits are available on federal exchanges—and even less likely that this decision would intentionally be delegated to the IRS. Accordingly, the majority stated that, since the Chevronanalysis was inappropriate under these circumstances, it was “instead the Court’s task to determine the correct reading” of Code Sec. 36B, and whether one of Code Sec. 36B’s “permissible meanings produces a substantive effect that is compatible with the rest of the law.”
The majority then analyzed the relevant statutory language in the context of the ACA as a whole and found that Code Sec. 36B is ambiguous—namely, that the phrase “established by the State,” as used in various contexts throughout the ACA, is not as clear as it initially seems. Thus, the Court concluded that while the phrase may be limited in its reach to state exchanges, it’s also possible that it refers to all exchanges—“at least for purposes of the tax credits.” This position found further support in other provisions that operate under the assumption that the tax credits will be available on both types of exchanges.
The court also dismissed the argument that the words “established by the State” would be unnecessary if the intent was to include both types of exchanges. Although the “canon against surplusage” doctrine generally gives effect to each word in an statute so as to not render any part of it “mere surplusage,” the court noted that this rule is not absolute. The majority also observed that the ACA “contains more than a few examples of inartful drafting,” and that a number of circumstances relating to its passage contributed to the fact that it “does not reflect the type of care and deliberation that one might expect of such significant legislation.”
Given its conclusion that Code Sec. 36B is ambiguous, the majority turned to the “broader structure” of the ACA to determine its meaning and easily concluded that the tax credits were intended to apply to insurance purchased on any exchange. In rejecting the taxpayers’ contrary argument, the majority cited Whitman v. American Trucking Assns., Inc., (Sup Ct 2001) 531 U.S. 457, for the proposition that Congress “does not alter the fundamental details of a regulatory scheme in vague terms of ancillary provisions,” noting that it seems highly unlikely that Congress would intend for the viability of the ACA to turn on a “sub-sub-sub section of the Tax Code.”
The court further cited its decision in New York State Dept. of Social Servs. v. Dublino, (Sup Ct 1973) 413 U.S. 405, in which it stated that “[w]e cannot interpret federal statutes to negate their own stated purposes.” To this end, the majority stated that “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them,” and upheld the subsidies—a critical part of the ACA.
The scathing dissent, written by Justice Scalia and joined by Justices Thomas and Alito, found that the language “Exchange established by the State” was clear and unambiguous, that buying health insurance on such a state-established exchange is a prerequisite to receiving health insurance subsidies, and that the subsidies are thus not available to taxpayers who purchase health insurance on federal exchanges. Justice Scalia criticized the majority’s position as “absurd” and wrote that “normal rules of interpretation seem always to yield to the overriding principle of the present Court: The Affordable Care Act must be saved.” He later stated that the ACA should instead be referred to as “SCOTUScare.”
The dissent stated its agreement that context matters, but stated that context is “a tool for understanding the terms of the law, not an excuse for rewriting them.” The dissent also noted that the phrase “by the State” was used not just once in the ACA, but seven times in connection with tax credits.
The dissent also took issue with the majority’s justification for its decision in terms of the ACA’s insurance reforms and overall purpose. It stated that, even if the ACA would be significantly less effective without the tax credits, such wouldn’t “show that the statute means the opposite of what it says” but would instead show that the statutory scheme is flawed. It further rejected the majority’s “inartful drafting” reasoning, noting that Code Sec. 36B is not obviously and unequivocally a mistake but could be, for instance, a means to encourage states to establish their own exchanges.
The Obama administration described the Supreme Court’s decision as “up[holding] one of the most critical parts of health reform—the part that has made it easier for Americans to afford health insurance, no matter where you live.”
In a 5-4 ruling, the Supreme Court held in Obergefell v. Hodges that the 14th amendment requires all states to license a marriage between two persons of the same sex, and to recognize same-sex marriages validly performed out of state.
In reversing the Sixth Circuit Court of Appeals, Justice Kennedy wrote: “No union is more profound than marriage, for it embodies the highest ideals of love, fidelity, devotion, sacrifice, and family. In forming a marital union, two people become something greater than once they were. As some of the petitioners in these cases demonstrate, marriage embodies a love that may endure even past death. It would misunderstand these men and women to say they disrespect the idea of marriage. Their plea is that they do respect it, respect it so deeply that they seek to find its fulfillment for themselves. Their hope is not to be condemned to live in loneliness, excluded from one of civilization’s oldest institutions. They ask for equal dignity in the eyes of the law. The Constitution grants them that right.”
“Today’s ruling will provide both same-sex and opposite-sex married couples with the same rights across all 50 states and the District of Columbia,” said Gail Cohen, vice president and general trust counsel for Fiduciary Trust Company International.
“The myriad of state and federal rights and privileges that are afforded to married couples will apply to everyone equally,” she added. “As advisers, we can now provide advice to all of our married clients in a manner that is consistent regardless of where the marriage takes place and regardless of where the married couple lives.”
“The decision affects fewer states than a ruling the other way would have done,” said Mark Luscombe, principal federal tax analyst for Wolters Kluwer. “Only four states were directly before the court, so the ruling technically only directly applies in Michigan, Ohio, Kentucky and Tennessee. Other states may decide to go along with the Supreme Court on this, or drag their heels and wait until a federal court with jurisdiction over them files a decision in line with this case.”
“There are 20 states in which same-sex marriage has been imposed by a court,” Luscombe observed. “Had the ruling gone the other way, it might have caused some of the 20 states to try to reverse.”
Rishi Agrawal, a state tax law editor at Bloomberg BNA, said the U.S. Supreme Court’s decision in Obergefell v. Hodges allows same-sex couples to now marry in all 50 states. “This right confers the same benefits to same-sex married couples that opposite-sex married couples already have in all states, including the ability to file joint tax returns and the right to inherit property from each other,” he said.
“Before the decision, same-sex married couples were already able to file joint tax returns at the federal level as a result of the 2013 U.S. Supreme Court case, U.S. v. Windsor. The 37 states that already recognized same-sex marriage generally require same-sex married couples to use the same filing status on their state returns as on their federal return. However, most states that did not recognize same-sex marriage required couples to file individually or as head of household. Some states even required same-sex married couples that filed jointly at the federal level to prepare pro forma individual returns for their federal taxes, creating an additional burden for those couples.”
“As a result of today’s decision, it is likely that states that did not recognize same-sex marriage before will follow the lead of other states and require same-sex married couples to use the same filing status on their state returns as on their federal returns,” he added. “We anticipate that states will soon issue tax guidance as a result of today’s decision on how same-sex couples can file joint returns and whether couples who were already married can file amended returns for 2014.”
“The U.S. v. Windsor decision in 2013 specifically addressed the fact that same-sex spouses may take advantage of the federal estate tax exemption for married couples when inheriting property,” Agrawal noted. “Following today’s decision, same-sex married couples will likely be treated identically to all married couples in all states with regards to estate tax and other inheritance issues.”
“The decision is the culmination of decades of litigation and the fastest shift in public opinion in American history,” said Nicole M. Pearl, a partner in the Los Angeles office of McDermott Will & Emery who has extensive experience in estate and tax planning for gay, lesbian and unmarried couples.
Those couples who live in states that don’t currently allow or recognize same-sex marriages will finally have the opportunity under federal tax regulations to:
• Make unlimited gifts to one other without having to worry about gift tax implications.
• Leave property to one another without the survivor needing to pay estate taxes.
• Leave an IRA to the surviving spouse as a “rollover” IRA, which is treated much more favorably for tax purposes than an “inherited” IRA.
• Qualify as a surviving spouse for purposes of determining Social Security benefits. For instance if a deceased spouse was receiving a higher Social Security benefit than the surviving spouse, the surviving spouse can generally qualify for the higher benefit.
Various state benefits will also accrue to such couples. Pearl added that those who traveled to another state to marry but reside in a state that does not currently recognize their marriage may be able to take advantage of certain state rights afforded only to married couples, including:
• Rights to visit each other in the hospital, or act as guardian or conservator for an incompetent spouse.
• Rights to file joint state income tax returns, thus saving money in many cases.
• Rights to inherit property under a state’s intestacy statute, or to act as executor or personal representative of a deceased spouse’s estate, and importantly,
• Enable same-sex couples to end a marriage that did not work out. Most states allow anyone to obtain a marriage license—regardless of where a couple is living. However, a couple generally cannot file for divorce in the court of any state in which they do not live.
(Bloomberg) President Barack Obama and his wife, Michelle, reported adjusted gross income of $477,383 for 2014, down 0.8 percent from last year, according to tax returns released Friday by the White House.
The Obamas paid $93,362 in federal taxes for an effective income tax rate of 19.6 percent. They made most of their income from the president’s salary, plus about $16,000 in interest and $88,000 in book royalties.
In his sixth year in office, Obama’s earnings continued to decline and the couple reported their lowest income since 2004, before he was elected to the U.S. Senate.
“Every year, it looks exactly the same and I think that’s certainly done by design,” said Anthony Nitti, a partner at the accounting firm of Top 100 Firm WithumSmith+Brown in Aspen, Colo. “There’s just no stock market investments whatsoever, same charitable contributions every year.”
Obama’s tax bill includes the cost of some of his own policies, including higher tax rates on wages and investment income for top earners. He also checked a box on the tax return that wouldn’t exist without his Affordable Care Act, verifying that he had health insurance for 2014.
Barack Obama, 53, and Michelle Obama, 51, paid $39,566 in mortgage interest. They have chosen not to refinance or pay off the mortgage on their home in Chicago, even though they could probably save money that way.
Because the Obamas are invested in Treasury bonds, they would do much better by paying off the mortgage instead of getting the limited tax breaks available at their income level, said Steven Bankler, an accountant in San Antonio, Texas.
“Even if you’re not in more lucrative investments, why are you paying the spread?” he said.
The Obamas overpaid their federal taxes throughout 2014. They will get a $20,641 refund and direct another $5,000 to their 2015 taxes.
The Obamas donated $70,712 to charity, almost 15 percent of their adjusted gross income, according to the statement. Their largest donation, $22,012, went to the Fisher House Foundation, a Rockville, Md.-based organization that provides housing to families of military members and veterans receiving medical treatment.
They also donated to the American Red Cross, Mosaic Youth Theatre of Detroit and Sidwell Friends School in Washington, which their daughters attend.
The White House also released a state return showing that the Obama family paid $22,640 in Illinois taxes.
Vice president Joseph Biden and his wife, Jill, reported $388,844 in adjusted gross income and $90,506 in federal taxes for a rate of 23.3 percent.
If you’re scared of an audit by the IRS, there’s less to fear these days. New data show that budget cuts at the IRS mean the agency is investigating fewer wealthy taxpayers.
An average taxpayer’s chance of being audited has tumbled 23 percent in three years, in line with an IRS budget that’s dropped an inflation-adjusted 17 percent since 2010. Only 0.9 percent of individual taxpayers were audited last year, the lowest proportion in seven years.
Even in this era of IRS austerity, wealthier people still face more scrutiny than average. If you make $200,000 to $1 million annually, your chances of an audit are around 2.2 percent, more than double the average. It’s even higher for the extra-wealthy—people who earn more than $1 million are audited at a rate of around 7.5 percent. But those rates are dropping, and precipitously.
The only major group that saw an increase in their chances of an audit last year? Taxpayers living overseas. New laws and regulations on investments held overseas have made their tax filing much more difficult.
While this may help individual taxpayers relax, fewer audits mean less tax revenue, in both the short and long term. Last year IRS audits of individuals uncovered $11.9 billion in unpaid taxes, 15 percent less than the year before. Fewer audits in 2014 could also mean more cheating in future years.
Academic studies show that having gone through an audit causes taxpayers to report more taxable income for years to come; the threat of another audit keeps them honest. IRS Commissioner John Koskinen estimates that budget cuts mean the government is losing at least $2 billion in revenue per year. “It’s a classic example of being penny wise and pound foolish,” he said in a March 31 speech.
For now, though, a growing economy is more than making up for what the IRS is losing from lower audit rates. The IRS still managed to boost its net collections by 8 percent last year, to $2.7 trillion.