MONEY Taxes

How Obamacare Could Make Tax Filing Trickier This Year

Affordable Care Act health insurance marketplace navigator Herb Shook pulls up information on his computer to help someone re-enroll in an Affordable Care Act health insurance plan Friday, Nov. 14, 2014, in Houston.
If you got a health insurance subsidy via the online marketplace, you may have more work to do on your tax return. David J. Phillip—AP

For the first time, you'll need to show that you had health insurance last year. For some, that means more paperwork.

In addition to the normal thrills and chills of the income tax filing season, this year consumers will have the added excitement of figuring out how the health law figures in their 2014 taxes.

The good news is that for most people the only change to their normal tax filing routine will be to check the box on their Form 1040 that says they had health insurance all year.

“Someone who had employer-based coverage or Medicaid or Medicare, that’s all they have to do,” says Tricia Brooks, a senior fellow at Georgetown University’s Center for Children and Families.

The law requires people to have “minimum essential coverage,” but most types of insurance qualify.

But for others, here are several situations to keep in mind.

If you were uninsured for some or all of the year

If you had health insurance for only part of 2014 or didn’t have coverage at all, it’s a bit more complicated. In that case, you’ll have to file Form 8965, which allows you to claim an exemption from the requirement to have insurance or calculate your penalty for the months that you weren’t covered.

On page 2 of the instructions for Form 8965 you’ll see a lengthy list of the coverage exemptions for which you may qualify. If your income is below the filing threshold ($10,150 for an individual in 2014), for example, you’re exempt. Likewise if coverage was unaffordable because it would have cost more than 8% of your household income, or you experienced a hardship that prevented you from buying a marketplace plan, or you had a short coverage gap of less than three consecutive months. These are just some of the circumstances that would allow you to avoid the penalty.

In addition, you don’t have to pay a penalty if you live in a state that didn’t expand Medicaid to adults with incomes up to 138% of the federal poverty level $16,104.60 for an individual in 2013) and your income falls below that level.

Some of the exemptions have to be granted by the health insurance marketplace, but many can be claimed right on your tax return. The tax form instructions spell out where to claim each type of exemption.

If you do have to go to the marketplace to get an exemption, be aware that it may take two weeks or more to process the application. Act promptly if you want to avoid bumping up against the April 15 filing deadline, says Timothy Jost, a law professor at Washington and Lee University who is an expert on the health law.

If you don’t qualify for a coverage exemption

If none of the exemptions apply to you, you’ll owe a penalty of either $95 or 1% of your income above the tax filing threshold, whichever is greater. The penalty will be prorated if you had coverage for at least part of the year. The amount of the penalty is capped at the national average premium for a bronze level plan, or $2,448 for an individual in 2014.

The instructions for Form 8965 include a worksheet to calculate the amount of your penalty.

If you received a premium tax credit for a marketplace plan

Under the health law, people with incomes between 100% and 400% of the federal poverty level ($11,490 to $45,960 for an individual in 2013) could qualify for premium tax credits for 2014 coverage bought on the exchanges. If consumers wished, the tax credit was payable in advance directly to the insurer. Many chose that option.

The marketplace determined the amount of premium tax credit people were eligible for based on their estimated income for 2014. At tax time those estimates will be reconciled against actual income. People whose actual income was lower than they estimated may have received too little in advance premium tax credits. They can claim the amount they’re owed as a tax refund.

People whose income was higher than estimated and received too much in advance premium tax credits will generally have to pay some or all of it back. The amount that must be repaid is capped based on a sliding income scale, but people whose income is 400% of poverty or higher will have to pay the entire amount of any tax credit back.

If you bought a plan on the marketplace, you’ll receive a Form 1095-A from your state marketplace by Jan. 31 that spells out how much your insurer received in advance premium tax credits. You’ll use that information to complete Form 8962 to reconcile how much you received against the amount you should have received.

Assuming the information on the form is correct, “It should be easy to reconcile,” says Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities. Tax software programs and tax preparers should know how to make the calculations, she said.

In addition to using commercial tax software or hiring tax preparer, many lower income consumers and seniors can get free tax preparation assistance through the IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs.

Despite resources to help consumers, this first filing season is likely to be bumpy, particularly for people who have complicated family situations or who receive inaccurate information from the marketplace.

“There is just so much confusion out there,” says Jennifer Tolbert, director of state health reform at the Kaiser Family Foundation (KHN is an editorially independent program of the foundation.). “People are going to see these forms and not have any idea what they’re supposed to do with them.”

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.

MONEY Taxes

H&R Block Giving Free Tax Software to Disgruntled TurboTax Users

Pedestrians walk past an H&R Block, Inc. office in San Francisco, California.
David Paul Morris—Bloomberg via Getty Images

The tax prep company has moved quickly to poach customers annoyed by TurboTax's "sneaky" price hike.

War is never fun, unless it’s between corporations—and results in freebies for you.

This time, tax preparation giant H&R Block is going guerrilla on competitor TurboTax by spreading news through the media—but leaving it off their website, for some reason—that they will give free “deluxe” tax prep software to anyone who has already bought TurboTax Basic or Deluxe for 2014.

Why would you want free software when you’ve already bought some?

Well, as evidenced by nearly 500 scathing one-star reviews on Amazon, many TurboTax customers have grown furious upon discovering that this year’s Deluxe edition is missing features that they got used to in previous years. Those include options for filing Schedule C and D forms, which let you report investment and small business income. Customers are describing the move as a covert price hike, since accessing the missing features requires upgrading to a more expensive version of the software.

Enter H&R Block, offering a similar deluxe program—but without the abridgements—for anyone who emails SwitchToBlock@hrblock.com with their name, address, phone number, operating system (Mac or Windows), and a scan or email showing proof of TurboTax Basic or Deluxe purchase.

Unsurprisingly, TurboTax is going into crisis mode, with vice president Bob Meighan attempting to appease angry reviewers on Amazon; the company is now suggesting that Deluxe customers who feel they have been misled might be eligible for a free upgrade after all.

“We know it’s a competitive environment, and we will do whatever we can to keep our customers happy,” says Meighan.

Given that literally anything else would be more fun to shop around for, it makes sense that choosing tax software has a lot to do with brand loyalty. Once you get used to software, the psychological cost of switching feels high.

But this opportunity is a good one for TurboTax customers who want to take a peek at what the competition is offering in terms of speed and ease of use. Those who paid only $20 for TurboTax Basic would get a $55 value from H&R Block—though the difference in price is probably not as important as user experience.

After all, the average tax refund is about $3,000, and—as both TurboTax and H&R Block software will tell you—the money you spend on tax software is often deductible if you itemize your deductions.

MONEY identity theft

18 College Students Arrested in Tax Identity Theft Ring

Vice President Joe Biden, center, speaks during a graduation ceremony at the Miami Dade College in Miami, Saturday, May 3,2014.
Javier Galeano—AP

Students in Florida allegedly stole tax refunds.

In November, the U.S. District Attorney of Southern Florida charged 18 Miami Dade College students for allegedly using stolen identities to file fraudulent tax returns and receive the refunds on their student bank accounts, but investigators think there are more people who have carried out the scheme, the Miami Herald reports.

Higher One accounts allow students to receive their financial aid or student loan refunds directly to a bank account, usually with an associated debit card, rather than wait for the school to cut a check. Many students use their loan refund (the amount left over after the school has taken what it requires for tuition and fees) to handle their education-related expenses like housing, textbooks, food and extracurricular activities.

The investigation identified more than 1,000 student accounts at Miami Dade College, most of which were Higher One accounts, that were used in a tax-fraud scheme, according to a news release from the district attorney’s office. Identity theft is a common crime in Florida — it has the most fraud complaints per capita of any state, according to the Federal Trade Commission, and tax-related identity theft is the most common kind of fraud reported.

It’s unclear how this crime seems to have become a pastime for college students, but it wouldn’t be surprising if it was something students see as an easy way to make money: One of the Miami Dade College cases includes a student who allegedly received $53,272 of fraudulent tax refunds to his Higher One account.

That’s a significant sum to most people, let alone a college student, but identity theft and tax fraud are serious crimes, not just for the perpetrators, but also for the victims. First of all, it makes tax season that much more complicated for people whose personal information has been stolen and used to file fake tax returns, and they’ll almost certainly see a delay in receiving their legitimate refund. Some people really count on that money, making the crime a financial burden for victims.

Then there’s the lifelong stress of knowing your personal information has been stolen. You have no idea who has your Social Security number and if it’s being used fraudulently. You can minimize the negative impact of some types of identity theft by monitoring your credit, because any unexpected changes could be an indicator of fraud, but you often can’t detect anything until damage has already been done. Still, keep a close eye on your credit by getting your free credit report summary every 30 days on Credit.com.

The investigation revealed some student accounts were used for more than just tax fraud — they seemed to have stolen Social Security benefits, as well. If convicted, the students involved in the fraud could face federal prison time.

Some students’ alleged involvement was limited to allowing their accounts to be used to launder the stolen money in exchange for a few hundred dollars, the Miami Herald reports, and U.S. Attorney Wifredo Ferrer said he believes this issue isn’t limited to Miami Dade College.

“We applaud the announcement by the authorities in connection with tax refund fraud at Miami Dade College,” wrote Lauren Perry, spokeswoman for Higher One, in a statement emailed to Credit.com. “We have been working with the authorities on these types of cases in southern Florida for some time now. … We will continue to be vigilant in safeguarding our customers’ personal and financial information and will work with our bank partners to report these illegal activities to authorities.”

More from Credit.com

This article originally appeared on Credit.com.

MONEY Taxes

Tax Filing Season Starts Jan. 20

This year, the IRS is running on time, but your employer might not be.

This year, you can file your tax return as early as January 20, the Internal Revenue Service announced Tuesday. That’s the day the government will begin accepting electronic returns and begin processing any paper returns it has received. The filing deadline for federal taxes is Wednesday, April 15.

The IRS will not delay the start of the tax filing season, even though Congress extended 50 tax breaks on December 19. Historically, similar last-second legislative changes have forced the IRS to postpone the beginning of tax filing season, the Associated Press reports. IRS Commissioner John Koskinen says that’s not necessary this year.

“We have reviewed the late tax law changes and determined there was nothing preventing us from continuing our updating and testing of our systems,” Koskinen said in a statement.

You probably missed out on most of the last-minute tax breaks Congress approved, which were only effective for the 2014 year. But before the clock strikes midnight on New Year’s Eve, you may still be able to get a tax break on your boat, tuition, commuting costs, and charitable contributions from your IRA. (See our last-minute tax tips for other moves you must make by year end.)

Keep in mind: Even if you want to file on January 20, you might not be ready. Employers have until the end of January to mail out W-2s to employees.

Still, if you can get your paperwork sooner, there are some big benefits to filing as early as possible. First, the IRS tries to get you your refund three weeks after receiving your return. Second, filing early reduces the risk of identity theft, wherein a criminal files a fraudulent tax return in your name and collects your refund.

Need more tax help? Check Money 101 and Ask the Expert:

TIME Congress

The 7 Biggest Things That Didn’t Happen in D.C. in 2014

Commuter, Horse Race Breaks Said to Get Senate Panel Vote
The U.S. Capitol stands surrounded by fog in Washington, D.C., March 20, 2014. Andrew Harrer—Bloomberg/Getty Images

No immigration reform. No Supreme Court fight. No shutdown.

Let’s face it: 2014 was no 2008. As far as politics goes, this year won’t go down in American history as one of the more notable ones.

But sometimes it’s the things that didn’t happen that are more interesting. And some very big things didn’t happen this year, even though pundits and commentators once thought they might.

Here’s a look at the seven biggest things that didn’t happen in Washington in 2014.

The House never passed an immigration reform bill.

What might have happened: In June of 2013, the Senate passed a bipartisan overhaul of the nation’s immigration laws. The House could have voted on that bill or passed its own version.

Who thought it would happen: Some Republicans. Many party leaders thought Republicans needed to put the immigration issue behind them in order to win the White House in 2016.

Why it didn’t happen: House Republicans sat the issue out. Speaker John Boehner never brought the Senate bill to the House floor or offered an alternative.

Could it happen next year? Not likely. When President Obama deferred deportation for millions on his own in November, Boehner argued that he had poisoned the well.

There was no big Supreme Court nomination fight.

What might have happened: With four justices born in the 1930s, one could have retired, following in the footsteps of former Justices David Souter, Sandra Day O’Connor and John Paul Stevens.

Who thought it would happen: Some liberal court-watchers suggested that Justice Ruth Bader Ginsburg, 81, should step down to ensure a Democratic-appointed successor.

Why it didn’t happen: They weren’t interested. For her part, Ginsburg noted that she’s still capable of doing the work and she seems to be having the time of her life.

Could it happen next year? Unlikely. The combination of a Democratic president and a Republican Senate would give both liberal and conservative justices pause.

Republicans never settled on an alternative to Obamacare.

What might have happened: Republicans in Congress could have gotten serious about the “replace” in “repeal and replace” and introduced an official alternative to the Affordable Care Act.

Who thought it would happen: Former House Majority Leader Eric Cantor. In January, he said the party would “rally around an alternative to Obamacare and pass it on the floor of the House.”

Why it didn’t happen: Election-year politics. An official Republican alternative would have been a sitting target for Democratic candidates.

Could it happen next year? Not likely. Republicans may now control all of Congress, but as long as they can’t get their plan past the president’s desk, there’s little incentive to produce one.

Congress didn’t debate tax reform.

What might have happened: The House Ways and Means Committee chairman Dave Camp’s tax reform plan, unveiled in February, could have sparked a serious effort to reform the tax code.

Who thought it would happen: Camp. He argued that Congress has an “obligation to debate the big issues of the day.” His plan was also praised by Rep. Paul Ryan, who called it a “terrific first step.”

Why it didn’t happen: Election-year politics. Passing tax reform would mean picking fights with a number of special interests and handing the president a win.

Could it happen next year? Probably not. Political observers now think the tax reform debate probably won’t begin in earnest until at least 2017.

The government didn’t shut down.

What might have happened: Conservatives angry over President Obama’s immigration and liberals angry over the repeal of some Wall Street oversight could have shut the government down.

Who thought it would happen: After last year’s bruising shutdown, no one thought it would happen again, but Congress came pretty close in December.

Why it didn’t happen: Both sides punted. The trillion-dollar spending bill passed earlier this month funded the government through September, but it left open a fight over immigration funding.

Could it happen next year? It’s unlikely. Even if conservatives pick a fight over immigration next year, it would only affect one federal agency, Homeland Security.

Obama didn’t become a powerless lame duck.

What might have happened: President Obama could have coasted into the final, lame-duck years of his presidency, wary of taking risks that might hurt Hillary Clinton in 2016.

Who thought it would happen: Some commentators and pundits already said that it had, slamming him for being passive and uninspiring.

Why it didn’t happen: Obama got energized. After Democrats lost the midterms, Obama took bold steps on immigration and reopening diplomatic relations with Cuba.

Could it happen next year? Certainly. There’s only so much the president can do on his own, so at some point he’ll be stuck either vetoing or approving Republican plans.

Congress didn’t find an intelligence failure on Benghazi.

What might have happened: The House Intelligence Committee could have unveiled dramatic, damning findings after a two-year investigation into the Benghazi attacks in Libya.

Who thought it would happen: Republicans. Despite multiple investigations into the attacks, many conservatives have been certain they’ll find a smoking gun.

Why it didn’t happen: The House committee didn’t find anything. The report, which was pushed out quietly on a Friday, found “no intelligence failure prior to the attacks.”

Could it happen next year? Unlikely. Rep. Trey Gowdy, who chairs the House Benghazi Committee, has promised more hearings, but it’s hard to imagine he’ll find anything new.

MONEY Roth IRA

Cut Taxes and Get a Bigger IRA With This One Neat Trick

A Roth IRA is a great tool for retirement savings. Here's how to make it even better.

At the beginning of every year, we work with some of our clients to convert their IRAs to Roth IRAs, knowing, even then, that we will undo most of those conversions at the end of the year. The whole process involves a lot of paperwork and tracking of their accounts throughout the year.

So why do we go through all this trouble? It’s a great way to save on taxes.

First, let’s do a quick review. An IRA is typically funded with pre-tax dollars and grows tax-deferred. When the account holder withdraws the money from the account, those withdrawals are fully taxed as regular income. A Roth IRA, on the other hand, is funded with after-tax dollars, and withdrawals are tax-free.

When you convert an IRA to a Roth IRA, you have to pay regular income taxes on the amount you convert. By doing the conversion, thus, you’re effectively paying income taxes now so that your withdrawals later — from the new Roth IRA — will be tax-free.

There’s a twist: You’re allowed to undo the conversion in the same tax year of the conversion without incurring any taxes or penalties. It is this ability to undo the conversion which provides for a great tax planning strategy.

So when and why might you want to do a Roth IRA conversion? And why might you want to undo it?

  • Low Income Taxes: Let’s say you lost your job, and you end up having a year owing little or no income tax. You could convert some amount of your IRA to a Roth IRA without much of a tax hit. Or maybe, because you’re self-employed or work on commission, your income varies widely; in a year with very low income, you could use the conversion to move money to a Roth at very low tax rates. Whatever your situation, you can convert at the beginning of the year, then depending on your earnings over the year, you can decided to keep the conversion or undo.
  • Topping off Your Tax Bracket: Similar to the low income taxes, if you find yourself in a lower-than-expected tax bracket, you may want to keep some of the conversion to fill up that lower tax bracket.
  • Investment Performance: The more your assets increase in value after conversion, the better. Since no one can time the markets, however, the best strategy (again) is to convert at the beginning of the year. Then, as year-end approaches, you can decide if the conversion was worthwhile. Let’s say, for example, that you convert a $10,000 IRA to a Roth in January. If in December the Roth is worth $15,000, you’ll still pay taxes only on the $10,000 you converted — a pretty good deal. If, however, the account is worth only $5,000 by December, you’d still have to pay taxes on that original $10,000 you converted. So if the converted assets lose money, you can just undo the conversion and pay no taxes on it at all.

If you’re taking this wait-and-see approach, you can increase your tax advantages even further — as we do with clients — by converting IRAs into multiple Roth accounts. In this multiple-account strategy, we put different assets into each new Roth. That process lets you select the asset that had the best returns after the conversion and keep it as a Roth, while undoing the conversion of other assets with low or negative returns.

To explain this strategy, let me use the hypothetical example of Sally, a self-employed graphic designer with $40,000 in a traditional IRA. In March 2014, she converts that IRA into a Roth.

For illustrative purposes, let’s suppose that she divides up her new Roth by investing $10,000 apiece in four different index funds, each representing a different asset class:

  • US large-cap stocks
  • US small-cap value stocks
  • International large-cap stocks
  • International small-cap value

At the end of November, Sally has more business income than she expected, and she decides that she would like to convert only $10,000 to a Roth — one-quarter of the original $40,000.

Let’s take a look at where her account has ended up:

Initial Investment Total Return End Value
US Large-cap $ 10,000 12.89% $ 11,289
US small-cap value $ 10,000 0.91% $ 10,091
International large-cap $ 10,000 -2.39% $ 9,761
International small-cap value $ 10,000 -8.09% $ 9,191
TOTAL $ 40,000 0.83% $40,332

The usual approach, in this situation, would have been for Sally to convert the entire IRA into one new Roth conversion account. In such a case, since she wants to convert only one-quarter of the original amount, she will be able to keep only one-quarter of her $40,332 balance at the end of November, or $10,083.

But the strategy we use would be to open four separate Roth conversions — one for each asset class. In that case, when Sally wants to undo the conversion on three-quarters of her original $40,000, she can keep the Roth account with the best return and undo the conversion on the other three. In this particular example, she would keep the US large-cap fund in her Roth, which is now worth $11,289.

So under this four-account option, she starts out with exactly the same investments as in the original scenario, and has exactly the same tax liability on the $10,000 Roth conversion she doesn’t undo. But she also ends up with $11,289 in her Roth account, not the $10,083 she would have had by converting into a single account. That’s an extra $1,206 in the Roth, for no added tax liability.

The following year, Sally can take the $29,000 that reverted to her traditional IRA and do the conversion all over again. (IRS rules dictate that once you’ve reversed an Roth conversion, you have to wait at least 30 days, and until a new calendar year, to do another.)

Neat trick, huh?

———-

Scott Leonard, CFP, is the owner of Navigoe, a registered investment adviser with offices in Nevada and California. Author of The Liberated CEO, published by Wiley in 2014, Leonard was able to run his business, originally established in 1996, while taking his family on a two-year sailing trip from Florida to New Caledonia in the south Pacific Ocean. He is a speaker on investment and wealth management issues.

TIME Healthcare

Nonprofit Hospitals Seize Low-Income Patients’ Wages

An investigation reveals the ongoing struggles of people too poor to afford health insurance but no poor enough to qualify for Medicaid

Many hospitals in the U.S. receive tax breaks in exchange for the community service of providing care to those who cannot afford to pay. But hospitals in at least five states employ aggressive debt collectors to garnish the wages of low-income patients with unpaid debts, a ProPublica/NPR investigation revealed Friday.

Hospitals in Kansas, Oklahoma, Nebraska, Alabama and Missouri pass debts along to for-profit collection agencies. People affected tend to be those who earn too much to qualify for assistance in states that rejected the Medicaid expansion in President Barack Obama’s health care law, but not enough to purchase health care on their own. The cost of health care services for the uninsured tend to be significantly higher than for people with health insurance.

Read more at ProPublica

MONEY Taxes

Congress Delivers a Few Last-Minute Tax Breaks

A last-minute bill restores a break for charitable giving, the sales tax and tuition write-offs, and more.

The U.S. Congress, in its wisdom, waited until the waning weeks of the year to approve some tax breaks that will only be good for 2014.

That means that in some cases, you lost out: it is too late to take advantage of them and you are going to lose them at the end of the year.

But there are a handful of provisions that may benefit some taxpayers who have special situations and can act quickly to lock in their breaks, once President Barack Obama signs the tax extenders bill as he is expected to do soon.

In addition to the usual year-end moves—make your charitable contributions, feed your individual retirement account, take your investment losses—consider this short list of limited-time strategies:

Give away part of your IRA. There is a special situation for people who face mandatory minimum distributions from their retirement accounts, but do not itemize their tax deductions, and as a result, can’t write off charitable contributions. They can avoid taxes on their IRA distribution by transferring it directly to a charity, suggests Greg Rosica, a partner with Ernst & Young.

This provision expires on Dec. 31, however, and it is unclear whether it will be renewed next year. Taxpayers in high tax brackets who do not itemize may want to transfer more than the minimum to get money out of their IRA and cover gifts they would otherwise make in subsequent years: under this rule, you can transfer as much as $100,000. So contact your favorite charity and make sure they can effect the rollover before year-end.

Buy your boat. Congress also extended, just through the end of 2014, the provision that allows taxpayers to deduct their state sales taxes from their taxable income instead of deducting their state income taxes. In places like Florida where there is no state income tax, that is a benefit that can be worth a lot. If you’ve had your finger on the “buy” button for a new boat, car, or other expensive item, you might save significantly by buying it this year, says Rosica, one of the authors of the voluminous EY Tax Guide 2015.

Make a tuition payment. Even people who do not itemize deductions are allowed to write off up to $4,000 in tuition and education expenses if their income falls under certain levels. You may have already spent that much on qualified education costs this year. But if you have not—and you expect to be ponying up for spring semester—make that payment before 2014 ends.

Talk to your human resources department about that commuting benefit. For almost all of 2014, employers operated under the clearly inequitable (and environmentally unfriendly) rule that people who used mass transit could set aside pre-tax income of up to $130 a month for commuting costs, but those who drove to work could set aside $250 a month for parking. Now Congress has equalized those two benefits at $250 per month for all of 2014—but this year alone.

For many workers at large companies, it is too late to get an additional $1,440 taken out of their pay for commuting costs this year. That’s too bad, because it could save some people more than $600 in state, federal and Social Security taxes. If you have a more flexible HR department, go ask for a make-up withdrawal. You could always load your farecard for next year when Congress may go through this exercise again.

MONEY Taxes

How to Keep Stock Gains From Hiking Your Tax Bill

By following a few simple steps, you can make sure gains in your portfolio don't result in a big gain in your tax bill.

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