800,000 Obamacare Enrollees Received Incorrect Tax Forms

Here’s a suggestion for the IRS’ next Tax Tips article: “What you should know about the incompetence of the IRS.” Or maybe this one: “10 reasons why you should not renounce your citizenship and move to Brazil.”  Their latest screw up came on Friday — or at least it was announced on Friday — that 800,000 Obamacare enrollees were sent the wrong tax forms and will need to wait until sometime in March to file their taxes.  Yet another reason to not be so eager about filing early.  And what about those conscientious tax return filers who already pulled the trigger?  Well, the Obama administration hasn’t quite figured out what to do with them yet.

Just keep checking in with the IRS on their website.  That’s where the IRS likes to funnel all inquiries these days.  They don’t have enough employees in their call centers to answer the phones usually; I would definitely not recommend you try calling.  I’m sure there will be some sort of extension for those who already filed using the wrong forms.  The Obama administration is great about accommodating people with extensions.  It will be all over the internet, just be sure you are looking to reputable news sources for you info.

There are always ways to describe Obamacare (or IRS) blunders so that it highlights the administration’s incompetence:

The White House tells us in a classic Friday news dump that nearly one million Americans could see their tax refunds delayed because of this president’s inability to implement his own law.

~ Diane Black, Rep Tenn

Not a full-blown “spin” though, in my opinion, because they very well could see their tax refunds delayed.  Years from now we will be able to look back, with experience and time giving us a better perspective, and determine if this is one of several innocent mistakes or if the government really did fail in the administration of Obamacare.  I know a lot of people believe we can make that call now, and would say that it has been a complete flop, not only the administration of the new law, but the whole idea of it in the first place.

IRS Not Prepared for New ACA Fraud Opportunities

The Treasury Inspector General for Tax Administration (TIGTA) is concerned that the IRS is not prepared to combat the onslaught of tax fraud that is anticipated once the IRS begins paying premium tax credits associated with the Affordable Care Act (ACA).  TIGTA recognizes that the IRS has systems in place to combat fraud in general; it has always been one of their top priorities.  But specific ACA fraud is another story.  The IRS is not prepared for this new responsibility which is bound to reveal unforeseen nuances.  The IRS has tested its systems that compute subsidies under ACA and the testing revealed flaws that could result in the IRS being unable to identify fraud prior to the issuance of credits.  In plain English, what this means is there is a significant risk that the IRS will inadvertently pay out credits to people who don’t really qualify.  According to the IRS, they have already made system corrections prior to the issuance of today’s report and they will be prepared.

Vengeful Audit Paranoia

People who get audited often feel like they have been unfairly targeted by the IRS.  Many of our clients have felt this way.  When the tax audit notice comes, they immediately review their past dealings with the IRS, trying to figure out why they have been audited and what they did to upset the IRS.  Some of the more paranoid audit victims will go back and mentally review all their dealings with any branch of the government, assuming that they were selected in an act of revenge.  I suppose it is human nature that causes them to wonder and question why they, of all people, were selected for audit.

Bill Elliot is a high-profile example of this “vengeful audit paranoia.”  He was audited after appearing on FOX News earlier this month where he criticized ObamaCare and told the nation about his health insurance policy being cancelled.  He couldn’t afford the new premiums offered in the federal health insurance marketplace and needs insurance probably more than the average person given that he is battling cancer.

We can’t know for sure whether Mr. Elliot was targeted by the IRS.  We know some of their audit selection criteria, and there are probably others that we don’t know.  People are also audited at least in part based on chance.  I don’t know of any confirmed “vengeful audits,” but maybe that’s the next IRS scandal

More on the Individual Mandate

With the individual mandate element of ObamaCare going into effect in 2014, some people who are currently without health insurance may be wondering if they should begin looking into joining the ranks of the insured. We now know what the penalty will be for failure to secure insurance, so there will certainly be those who do a little cost/benefit analysis. As the deadline creeps up on us, perhaps some are also wondering why. Why is there a penalty at all?

I found a succinct and informative article on the PBS website that answers many of the common questions that pop up in relation to the individual mandate: http://www.pbs.org/newshour/rundown/2013/09/how-will-the-obamacare-mandate-impact-you.html

If you aren’t already aware, Americans will be required to obtain health insurance beginning in 2014 or else pay a tax penalty of up to $95 per adult and half that for each child, or 1 percent of the household income, whichever is greater. And if you still don’t have coverage by 2016, you’ll pay as much as $695 per adult and $347 per child pursuant to the individual mandate.

What I really like about the PBS article is the plain-language explanation of the “why.”  For the health care overhaul to work, there has to be a broad base of participants. If everybody participates, including the young and the healthy, then the rates will (ideally) remain low. If coverage were not mandatory, then there would be an inordinate number of sick, high-cost participants which would drive the price of insurance through the roof.

However, opponents of the individual mandate believe that the penalty isn’t severe enough to ensure anything near 100% participation. Some people will certainly weigh their options and risk a penalty that will be lower than a health insurance premium, especially if the IRS is not going to do too much to enforce the individual mandate.

IRS Launches New ACA Website

The IRS’ new Affordable Care Act website is up and running.  Most of the new content is organized into three main parts: (1) Individuals & Families, (2) Employers, and (3) Other Organizations.

The Individuals & Families page is further broken down into two subtopics designed to educate the public on what they need to consider immediately (in 2013) and what they should look forward to in 2014.  Individuals should explore and begin planning for open enrollment in the Health Insurance Marketplace, which opens October 1, 2013.

The Employers page has a separate set of instructions for small employers (fewer than 50 full-time employees) and large employers (50 or more full-time employees).  It helps to educate employers on their specific coverage and reporting requirements and also explains what employer credits might be available.

Some organizations will be subject to special rules under the Affordable Care Act.  These “other organizations” include insurers, miscellaneous business types, non-profits, and government agencies.

The ACA website features a nifty news bar so we can always stay informed of new developments related to the Affordable Care Act.  It also very neatly lists all the various tax provisions, both in layman’s terms and in the form of news releases, notices, regulations, revenue procedures, revenue rulings, and Treasury decisions for the tax lawyer and studious type.  Lastly, the new ACA website includes links to related federal government websites like the Department of Health & Human Services, the Small Business Administration, and the Department of Labor.

Is IRS Ready for Obamacare Amid Turmoil?

The IRS was selected as one of the main agencies to implement President Obama’s new health care law.  Many of the provisions will go into effect next year.  But it is difficult to see how the IRS will be able to get all its ducks in a row amid the tax exempt applications scandal, congressional scrutiny of overspending, and various leadership changes.  All this turmoil seems to have come at a time when the IRS will be needed most.

There were more than 40 tax code changes associated with the Affordable Care Act, many of which are still being hammered out.  Here are some of the tasks that the IRS faces in the coming months:

  • collect tax penalties from individuals who fail to obtain insurance and employers who fail to provide it
  • define key terms in the law such as “minimum value,” and “minimum essential coverage”
  • issue guidance on new forms

Will the IRS be ready, or will they try to request an extension?

Obamacare and the Individual Mandate

The health care coverage mandates under the Affordable Care Act are scheduled for January 1, 2014.  So what will it mean for individuals? There are penalties and “carrots” associated with the looming health care changes.

Starting in 2014 if your employer doesn’t offer insurance, you will be able to buy it directly from an affordable insurance exchange. An “exchange” is a supposedly transparent and competitive insurance marketplace where individuals and small businesses can buy affordable and qualified health benefit plans. Exchanges will offer a choice of health plans that meet certain benefit and cost standards.

As an individual who needs health care, in addition to the incentives offered by your employer if you are employed, there are incentives for you to obtain adequate health insurance.  Beginning in January 2014, insurance companies will be prohibited from refusing to sell coverage or renew policies based pre-existing conditions or from charging higher rates based on gender or health status. Additionally, depending on your income, advanceable tax credits will be available on qualified insurance coverage. The advanceable tax credit will lower your monthly premium payments so that you will not have to wait for the tax season to arrive to realize the benefit. This is the carrot.

Here’s the penalty: unless you meet the criteria for an exemption, you’re going to pay Uncle Sam if you don’t have health insurance. This is the “individual mandate.” The imposed fee is intended to help offset the costs of caring for uninsured Americans. Exemptions from the individual mandate for obtaining health insurance include religious reasons or where the least expensive health insurance policy available exceeds 8% of income. Unpaid fees may result in IRS tax problems since the IRS will be charged with collection.

If you don’t meet the criteria for an exemption, and you choose to not obtain health insurance, you will pay Uncle Sam nonetheless. The amount is tiered year to year beginning in tax year 2014. For year 2014, if you don’t have qualified health coverage, the minimum fee will be the greater of 1% of your annual income or a flat amount of $95. In tax year 2016, this penalty will increase to the greater of 2.5% of your annual income or a flat amount ranging from $695 to $2,085, depending on your household size. After year 2016, the penalty will be increased annually by the cost-of-living adjustment.

Tax Incentives for Small Businesses under Obamacare

The health care coverage mandates under the Affordable Care Act are scheduled for January 1, 2014.  So what will it mean for business owners?

The small business health care tax credit is the carrot for small business owners to contribute to their employee’s health care. Beginning in 2014, Uncle Sam’s carrot for small businesses that pay at least half of their employee premiums for qualified health insurance coverage, and employ 25 or fewer workers with an average income of $50,000 or less, is a tax subsidy on the health insurance premiums they pay.

The maximum qualified subsidy is 50% and is available to small businesses with an average payroll for full-time equivalent employees of $25,000 and ten or less full time employees. The subsidy is presently scheduled to be reduced by 3.35% per additional employee and 2% per additional $1,000 of average income.

Therefore, the savvy small business owner, who is doing good by contributing to their employee’s health insurance will be able reduce their expenses by paying careful attention to their workforce and wages paid. It may be necessary to consult with an experienced CPA or tax attorney for a more individualized understanding of these tax incentives.

Supreme Court Expands Congressional Tax Power

image via lawprofessors.typepad.com

Tax relief for people who buy certain things? — sure (like real property).  A tax imposed on people who buy certain items? — sure (like cigarettes).  But a tax imposed on people who do not buying something?  That’s definitely new!  Apparently penalizing citizens for not purchasing health insurance now passes constitutional muster as a “tax,” or so says the Supreme Court.

Roberts recast the [health care] mandate as a tax, a rationale that was not in the law or the government’s case. He rewrote the administration’s position, baptized it, and then blessed it. Roberts’ defenders argue that he did so to avoid a constitutional crisis, but he may have created another by judicially re-legislating policy, a policy paid for and enforced by what could be essentially the largest tax increase in American history.

~William J. Bennett, CNN Contributor

 I guess it’s true what they say about the government’s taxing power.  It’s sort of a “catch-all” for federal programs that seem unconstitutional in all other respects.

IRS to Hire 4,000 New Employees

“[I]t’s a power grab. So even if the ObamaCare gets thrown out those agents will be there to harass us. What we need as a nation is fewer tax collectors and more entrepreneurs. We need tax simplification and these IRS agents should be able to contribute to the economy instead of sucking the blood out of it.

~ Steve Forbes