Tag: Obamacare

Posted on by Jan Roberg

Small Business Healthcare Tax Credit

http://www.smallbusinessmajority.org/tax-credit-calculator/

 

“Starting in 2010, up to 4 million small businesses that offer healthcare coverage to their employees may be eligible for a tax credit. Fill in the amounts below to find out what your tax credit will be.

 

To qualify, a small business must:
Have fewer than 25 full-time equivalent employees
Pay average annual wages below $50,000 per FTE
Contribute at least 50% of each employee’s premium

 

Notes:
Owners are excluded, and should not be counted in number of employees, wages, or premium contribution amount.
Tax credits can’t be larger than actual income tax liability.
For detailed information about how the tax credit works and other issues related to the new law and small businesses, see this list of frequently asked questions. We’ll be adding to this document regularly.”

Posted on by Jan Roberg

Introducing Two New Tax Forms for High Income Individuals

Money

Photo by 401(K) 2012 at Flickr.com

 

Back in July of 2012, I wrote about the new Medicare taxes that higher income earners will be subject to under the Affordable Care Act starting in 2013.

 

Briefly, there is an additional Medicare tax of .9% on wages and self employment income over $200,000. ($250,000 for married filing jointly couples/$125,000 for married filing separately)  For more details and a complete breakdown of the taxes you can read the post at:

http://robergtaxsolutions.com/2012/07/obamacare-what-you-need-to-know-part-2/

 

And there’s also the new Medicare tax of 3.8% on your investment income. The 3.8% tax is going to apply to the lesser of your net investment income or the amount of your AGI in excess of a certain threshold amount.   The thresholds are $200k-singles and Head of Household, $250K-MFJ, and $125K-MFS.  For more information you can check this post out.

http://robergtaxsolutions.com/2012/07/obamacare-what-you-need-to-know-part-3/

 

Now that 2013 is more than halfway through and the income tax filing season will be here before you know it, how are you supposed to report those taxes on your 1040 tax return?  Well, the IRS has introduced not one but two new tax forms for you to fill out.

 

I don’t know why, but introducing new tax forms makes me feel a little like a late night talk show host, so forgive me for saying, let’s bring out our first guest, Form 8959!  http://www.irs.gov/pub/irs-dft/f8959—dft.pdf Okay, it’s no Johnny Depp.  It’s not even as interesting as the Aflac Duck.  But it is new.  If you click on the link, you’ll have to scroll past all the warning it’s only a draft signs.  (If you’re reading this in 2014, you should be able to find actual forms instead of drafts.)  The Form 8959 is what you’ll be filling out if you have to pay the .9% Medicare tax on wages or self-employment income.

 

If you have investment income, the new form is called the Form 8960 and here’s a link to that:  http://www.irs.gov/pub/irs-dft/f8960—dft.pdf That’s going to be the form you file for the 3.8% Medicare tax on investment income.

 

Now the upside to both of these forms (if there’s an upside to paying more taxes) is that if you’re using computer software (like the 1040.com software you can access from this website) — the software will compute everything for you.  I have 100% confidence that Turbo Tax, H&R Block at home, and all the others will get the 8959 right.  The 8959 form is for the .9% tax on wages.  The form is very straight forward (as far as tax forms go, at least to a tax geek like me.)  You basically take numbers from your W2 or self employment tax form and do a little multiplication.  Bam—you’re done.

 

But I am a little concerned about potential errors in the 8960 forms.  There are 21 official lines to the form and there are 16 places where the form says “see instructions.”  That’s telling me there’s a lot of room for error there.   You’re still going to be better off using a tax software if you have to file the form 8960, but I’d be cautious.  Don’t rush to be the first one to file your return.  During tax season, software programs are updated daily.  This form is likely to have bugs, so let the IT folks work those bugs out before you submit.

 

As a tax professional, I’ll be going over those forms with a fine tooth comb until I’m confident the numbers are all flowing correctly.

 

The taxes that you compute on forms 8959 and 8960 will be reported on line 60 of your 1040 tax return:  http://www.irs.gov/pub/irs-dft/f1040—dft.pdf Line 60 used to just say “other taxes” but now it will specifically 8959 and 8960 with little checkboxes.

 

So technically, Congress can say that your 1040 form won’t be longer.  You’ll just have extra pages to attach to it.

Posted on by Jan Roberg

How Much is Obamacare Going to Cost Me?

Doctor's Office

Photo by Tom Hart at Flickr.com

 

Recently Congress delayed the requirement of businesses with over 50 employees to provide health insurance to their workers.  They were supposed to start in 2014, but now that’s been extended to 2015. Congress did not extend the requirement of individuals to have insurance in 2014 though.

 

If you don’t already have health insurance coverage, what are you supposed to do?  Good question.  This isn’t something you’re just going to figure out in two minutes.  I don’t have any easy answers for you.  But I can help you get some of the answers you need to make your decisions.

 

What’s better, buying insurance or paying the penalty?  Let’s be real, having insurance is better than not having insurance–but what’s it going to cost?  You can’t buy insurance if you can’t pay for it.

 

First, let’s figure the cost of the insurance.  Right now, the exchanges aren’t ready yet, but if you’re reading this after October 1, 2013, you should be able to go straight to the exchange and get solid dollar figures:  https://www.healthcare.gov/

 

But in the meantime, I’ve found that the subsidy calculator from the Kaiser Family Foundation to be really helpful.  Using their tool, you plug in your family income, ages, whether you smoke or not, and it will spit out what your insurance premium would be if you paid the full premium, and also how much of a subsidy you’d qualify for.  Now remember, this calculator is based on averages from around the country.  You may live in a more expensive or less expensive area.  But at least this will give you some kind of clue as to what kind of money we’re talking about.

 

For example:  let’s say we have a young couple with a baby.  They don’t make very much, just $30,000 together for the year.  They don’t smoke.  According to the calculator–if they had to pay full price for their insurance, they’d pay $8,792 for a “silver plan” health insurance per year.  Yowza!  On a $30,000 a year income, there’s no way a family could afford that.  But, because their income is low, they’d qualify for a subsidy.  With the subsidy, they’d only pay $1,250 a year for that health insurance.   That’s still kind of high when you only make $30,000 a year though.  But if they chose the “bronze plan” their subsidy would completely cover their insurance and they’d be paying zero dollars to have health insurance.   Zero’s a price I think they can live with.

 

What’s this “bronze” and “silver” stuff?  The health plans are coded, bronze, silver, gold, and platinum.  Bronze is the least comprehensive, platinum being the most.  With a bronze plan, you pay 40% of your own costs, silver; 30%, gold 20% and platinum 10%.  Basically, the more you pay for the premium, the lower your co-pay is.

 

In our earlier example, the couple wound up qualifying for free health insurance.  What would happen if our couple made $50,000 a year instead?   Same circumstances so the full premium would stay the same at $8,792.  But, their subsidy would go down to $4,679 and their out of pocket would be $4,112.  Or they could enroll in a bronze plan which would have them paying $2,607 after subsidies.

 

So the question becomes, do you buy the health insurance or do you pay the penalty for not having it?  If they can’t afford the $2,607 how much is the penalty?  For a married couple, (I’m using 2012 numbers because I don’t have 2014 yet), to compute the penalty for not having health insurance you would take their income (which is $50,000 in this example) and subtract the filing threshold (which for a married couple is $19,500) and then multiply by 1%.  Like this:

 

$50,000 – $19,500 = $30,500 (they call this excess household income)

 

Then take 1% times the excess household income:  $30,500 x .01 = $305

 

So for this couple, paying the penalty for not having insurance in 2014 will cost less than the insurance premium.  I’m not saying they shouldn’t buy the insurance–I think insurance is a good thing.  But you need to know what the options are.  What it costs to have insurance, and what it costs to go without.

 

Take a look at the numbers for your family.  Go to the Henry J Kaiser Family foundation website and check out their subsidy calculator.  Here’s the link:  http://kff.org/interactive/subsidy-calculator/

 

If you want to read more about penalties for not having insurance, check out my other blog post:  http://robergtaxsolutions.com/2012/07/obamacare-what-you-need-to-know-part-1/

 

For more information about the Affordable Care Act, here’s a good, easy to understand video:  http://www.youtube.com/watch?v=JZkk6ueZt-U

Posted on by Jan Roberg

Does the New Health Care Bill Have a 3.8% Sales Tax on Selling Your Home?

Boardwalk

Photo by therichbrooks at Flickr.com

I received a question from Laura who asked:

 

“I just received an email from a friend that said that there will be a 3.8% tax on all home sales after 2012 and that this tax is part of the Health Care bill. Do you know anything about this and can you clarify it?  Thanks.”

 

I’ve heard that one too, but it’s not exactly true.  Last week I wrote about a 3.8% Medicare tax on investment income which includes long term capital gain transactions of real estate—and that’s the rule that people are referring to when they talk about a sales tax on selling your home.

 

Let’s sort this out so you know exactly what’s going on.

 

Bottom line: if you sell your house after you’ve lived in it for at least two years, $250,000 of the profit is excluded from capital gains tax. ($500,000 if you’re married.) Let’s say your house cost $200,000 (this is usually referred to as “basis” in the tax prep world) when you bought it and you sell it for $400,000, that’s a gain of $200,000.  You’re not even in the running for paying the 3.8% Medicare tax because all of that gain was excluded from your income.  For you, this Medicare tax would not be an issue at all.  None of the proceeds from the sale of your home in this instance would even show up on your tax return.

 

Now let’s say you live someplace where the property values have gone up astronomically.  (Clearly you don’t live in my neighborhood if they did.  Our values just seem to drop while our property taxes go up.  Sorry, I’m whining.)  Okay, let’s say you live someplace where real estate values have increased way more than they have here in Missouri—then you could have an issue.

 

Let’s say you bought your house for $100,000 and sold it for $800,000 so that you’ve got a profit of $700,000. A $700,000 profit is a good thing!  Assuming that you’re married, you get to exclude $500,000 of that gain from the capital gains tax so you would only pay tax on the extra $200,000.

 

Let’s do the math:  $800,000 sales price – $100,000 purchase price = $700,000 capital gain.

 

$700,000 capital gain – $500,000 capital gain exclusion = $200,000 that you have to pay capital gains tax on.

 

A transaction like that will kick you into a high enough tax bracket to pay that extra Medicare tax in addition to the capital gains.

 

For most normal folks—we’ll never have to pay the Medicare tax on the sale of our homes.

 

If the value of your home has increased so much that you have to pay that tax—then to quote Charlie Sheen, “Winning!”   Seriously, you’d have gained $700,000 on the sale of your home.  That would be awesome.  And you’d only have to pay capital gains tax on $200,000 of it.

 

Right now—the capital gains tax for 2013 is scheduled to be 20% (who knows what Congress will say before the year is out but that’s what it’s scheduled to be.)  And the extra Medicare tax will be 3.8%.    So—let’s do the math on that:

 

200,000 taxable gain x .2 capital gains tax = $40,000

 

200,000 taxable gain x .038 Medicare tax = $7,600

 

So the total tax on that gain would be $47,600.  As bad as that sounds, remember we’re looking at a $700,000 gain to begin with so you’re really only paying 6.8% (or 47,600/700,000 * 100) tax on that amount.  Granted, we’re talking about one little example with crazy numbers—but remember—that’s for someone who has enough gain to have to pay in the first place.  Like I said earlier, for most of us—we’re looking at zero tax money spent on the sale of our homes.

 

(Note from editor:  So I checked the web and saw that many people were receiving emails claiming that there was this 3.8% sales tax on the sale of your home.  However, what these emails failed to explain was the exclusion amounts (250k single or 500k married) that are shielded from tax.  They later went on to criticize the health care bill and our current president.  Since it is an election year, you are probably more susceptible to emails or messages like this to try to get you to vote a certain way.  Do your research and keep checking in with this blog for the most recent and accurate information.)

Posted on by Jan Roberg

Obamacare – What You Need to Know (Part 3)

Carlos Beltran - St. Louis - 2012 Road

Photo by BaseballBacks on Flickr.com; St. Louis Cardinals outfielder, Carlos Beltran, put on a strong showing in yesterday's homerun derby! Go Cardinals!

Part 3: Medicare Tax on Investment Income to Start in 2013


If your income is less than $125,000 a year, then you don’t need to worry about this. But if you are a high income earner, then you should really make sure you check this out.

 

First, there are two things you need to be aware of about taxes on investment income for 2013. One is that the current maximum tax rate on long-term capital gains is scheduled to go up to 20% instead of 15% which it now is (unless Congress decides to act). This is due to the sun setting of the Bush Tax Cuts. It has nothing to do with Obamacare – that’s already in the tax code.

 

The second issue is that higher income folks will also be taxed with an additional 3.8% Medicare contribution tax. (This is what’s in the Obamacare tax package.) This Medicare contribution tax will only apply to higher income earners so those people will also be in the 20% long term capital gain tax as well.

 

What makes the 3.8% Medicare tax kick in? It’s all going to be based upon your adjusted gross income (AGI), kind of like the higher Medicare tax on wages that I wrote about last time. The Medicare tax will kick in if your AGI exceeds:

 

$200,000 if you’re single or filing as head of household
$250,000 if you’re married and filing jointly, or
$125,000 if you use the married filing separate status

 

Before I go on, what exactly do they mean by net investment income? When I was reading the rules, I was thinking about stocks and bonds – that’s what I consider to be investment income. But for this tax, investment income also includes interest, dividends, royalties, annuities, rents, income from passive business activities, income from trading in financial instruments or commodities, and of course, gains from assets held for investment like stocks and other securities. As you can see, this category is much larger than just stocks and bonds. One thing that’s not included here are gains from assets held for business purposes – those won’t be subject to the extra tax.

 

So how does the tax get applied? Now this is where it gets a little funky – the 3.8% tax is going to apply to the lesser of your net investment income or the amount of your AGI in excess of your net investment income. Whew – did you feel something fly right over your head? Trust me I had to read that over a few times to figure out what that meant. And trying to word it differently didn’t always give the right meaning – so let me explain with some examples, okay?

 

Let’s say you’re a married couple and your joint income is $275,000. $225,000 in wages and $50,000 in investment income. You’re going to pay the 3.8% Medicare tax on the investment income that is over the $250,000 threshold. Here’s the math:

 

275,000 – 250,000 = 25,000 (Long version: $275,000 income – $250,000 threshold = $25,000 amount of investment income subject to the extra tax)

 

25,000 x .038 = $950 (Long version: $25,000 investment income subject to Medicare tax x 3.8% Medicare tax rate = $950)

 

So even though you had $50,000 of investment income, you only pay $950, or 3.8% of the 25,000 over the $250,000 threshold.

 

Now let’s say you’re single with those same numbers. Because your threshold is lower, you’d wind up paying the 3.8% tax on all of your investment income. Here, let me show you the math again:

 

275,000 – 200,000 = $75,000 (Long version: $275,000 income – $200,000 threshold = $75,000 amount of investment income that could be subject to the extra tax)

 

But $75,000 is more than the $50,000 investment so we only use the $50,000 to compute the tax.

 

50,000 x .038 = $1,900 (Long version: $50,000 investment income subject to Medicare tax x 3.8% Medicare tax rate = $1,900)

 

Got it?

 

Now remember, I’m just computing the new Medicare tax here – I haven’t taken into account the increase in the long term capital gains rate that is also scheduled to go into effect. And I haven’t even discussed the fact that the tax rate for qualified dividends (which are currently taxed at the long term capital gains rate) is scheduled to change to the ordinary income tax rates. Those changes, if they are not addressed by Congress before the year ends, will have an even larger impact on investment income tax than the Medicare tax and will be affecting persons of all income levels.

 

Remember, these tax changes are scheduled for 2013 so they are not in effect for 2012. You just need to be aware of what’s coming so that you can make intelligent decisions about your investments.

Posted on by Jan Roberg

Obamacare – What You Need to Know (Part 2)

Part 2: New Medicare Taxes to Start in 2013

Hospital

Photo taken by José Goulão on Flickr.com

In my last post I wrote about the penalty you could pay if you don’t have health insurance.  Those taxes start in 2014.  Today, I’m going to talk about the new Medicare taxes that are supposed to start next year in 2013.

 

First thing to know – if your income falls below $125,000 a year – you don’t even need to read the rest of this, it’s not going to affect you.  (You’re welcome to stay, I like when you stay, and I just don’t want to waste your time.)

 

But the additional Medicare tax is really targeted at higher income earners.  Starting in 2013, an additional .9% hospital insurance (I’m going to call that HI for short) will be imposed on wages in the following categories:

 

over $250,000 for married taxpayers filing a joint return (MFJ),

over $125,000 for married taxpayers filing separately (MFS), and

over $200,000 for singles and head of households (Single and HOH)

* Employers will begin withholding the HI tax on any wages that are in excess of $200,000.  Wages earned by your spouse are not taken into account in the withholding calculations.

 

So let’s say you’re married and your joint income is $300,000.  Your additional HI tax would be computed as follows:

300,000 – 250,000 = $ 50,000 (that’s the excess over the threshold)

50,000 x .009 = $ 450

 

If you are an employee at a company, your boss would be withholding the excess from your wages.

 

If you are an employer and you have employees that earn over the threshold, you do not have to pay the employer match like you do with the regular Medicare tax – this HI (hospital insurance) tax is for employees only.  You’re still paying it with your payroll tax return because you withheld the funds, but you’re not matching the funds with your own money.

 

If you are self employed you have to pay the HI tax on your earnings.

 

What that could mean to you – Let’s say you’re married and you and your wife each earn $190,000 a year.  Your combined income is $380,000 a year so you’d have to pay a HI tax of $1,170 ((380,000 income – 250,000 MFJ threshold from table above) * 0.009).  Because neither of your individual incomes put you over the threshold, you won’t have withheld enough and you’ll have to pay the additional tax.

 

Likewise, let’s say you’re married with a non-working spouse.  You make $250,000 a year.  Your employer has withheld an extra $450 from your pay because you made over $200,000 – but since you’re married, your filing threshold is $250,000 so you should be getting that excess $450 back.  (To get to this $450 withholding, we take ($250,000 income – 200,000 employer holding threshold) * 0.009.)

 

So that’s the new Hospital Insurance tax on higher wages and self employment income.

 

There’s also a new HI tax on investment income.  Once again, that will also be on folks with higher incomes.  I’ll be tackling that in my next post.

 

Note from Editor:  Since I am a numbers guy, I added a chart to demonstrate the amount of HI Tax you could incur.   Because the 0.9% is a flat rate (meaning it never changes), for each increase of $1,000 in income, the HI tax will increase by $9.  Here I am going to show increments of $5,000 which will result in $45 increases.

 

Hospital Insurance Tax for High Income Earners
HI Tax Rate Excess Over Threshold Amount (The amount being taxed) Total (HI) Tax
0.009 x $ 5,000 = $45
0.009 x 10,000 = 90
0.009 x 15,000 = 135
0.009 x 20,000 = 180
0.009 x 25,000 = 225
0.009 x 30,000 = 270
0.009 x 35,000 = 315
0.009 x 40,000 = 360
0.009 x 45,000 = 405
0.009 x 50,000 = 450
0.009 x 55,000 = 495
0.009 x 60,000 = 540
0.009 x 65,000 = 585
0.009 x 70,000 = 630
0.009 x 75,000 = 675
0.009 x 80,000 = 720
0.009 x 85,000 = 765
0.009 x 90,000 = 810
0.009 x 95,000 = 855
0.009 x 100,000 = 900

 


Posted on by Jan Roberg

Obamacare – What You Need to Know (Part 1)

Editor: Thank you Wendy and Jeff for inspiring such a great post! Jan and myself are deeply vested in the decisions made by our White House. We hope to bring clarification to everyone in the like on this confusing but pertinent ruling. Happy Fourth of July!

Part 1:  How Much is the Penalty for Not Having Health Insurance?

 

In less than an hour after the Supreme Court announced their ruling that Obamacare was Constitutional, my phone started ringing with people asking me questions. I’ll be honest – I wasn’t prepared for that.  But the one caller that really got to me said, “Make it simple so that I can understand it.”  Her big question was – How much is it going to cost me?  So for her – I’m going to try my best to explain it.

 

Today I’m going to talk about the mandate part – that is – how much tax you’re going to have to pay if you don’t have health insurance.  (And yes, it is a tax because the Supreme Court says so.  This is a point people argue about but today I’m skipping to the math.)

 

First thing to know:  You aren’t required to have health insurance until 2014, so if you’re reading this in 2012 you’ve got time to figure things out.  The actual tax won’t have to be paid until the next tax season which would be in April of 2015.  That should give you a time line to work with.

 

The second issue is – who’s going to have to pay?  If you read the law it says non-exempt US citizens and legal residents.  This is another part where everybody goes all nutso about illegal aliens not having to pay the health insurance tax.  While that’s a genuinely valid concern, I’m not going to touch that today.  I’m looking at those of us who are citizens and legal residents – what are we doing? Fair enough for now?

 

Okay – so what does that “non-exempt” part mean?  Here, anybody whose income is below the filing threshold is exempt from having to pay the tax for not having health insurance.   Those “non-exempt” people are the ones who have to pay.  Filing threshold is the amount of money you make where you have to file your income taxes.  Say you’re single, for 2012 the IRS says the filing threshold is $9,750 so if you make less than that you don’t have to have insurance.  If you’re married, the filing threshold is $19,500 for 2012.  The filing threshold usually goes up a little bit every year so it will be different for 2014, but probably not by much.

 

So those incomes are pretty low, so what happens to the single person who makes $25,000 a year?

 

This is where it gets kind of tricky.  They compute it as a formula.  For 2014 the penalty for not having health insurance will be $95 or 1% of your income over the filing threshold – whichever is greater.

 

So let’s look at the single guy who makes $25,000 a year.  Take his income of $25,000 and subtract the filing threshold (I’m going to use 2012 numbers because I have those) 25,000 – 9,750 = $15,250.  Then you multiply that by one percent or .01.  That gives you $152.50.  Since the $152 is a bigger number than the $95, that’s what he’d pay.

 

Are you still with me?  Now if the married family made the same amount, they’d pay less because they have a different filing threshold.  The formula would look like this:

 

25,000 – 19,500 = $ 5,500   (income minus threshold = excess household income)

 

5500 x .01 = $ 55 (excess household income times percentage = tax)

 

Oopsies – except here the number is less than $95, so the family would have to pay the $95 minimum anyway.  The $95 is a de minimis amount for those of you who may be involved in law or mathematics.

 

So that’s how you compute it for 2014. But in 2015, the numbers go up. In 2015, the minimum is now $325 and the percentage of excess household income goes up to 2%.

 

(Okay, excuse the opinion here but who in the heck called it excess household income?  If you’re married and only making $25,000 a year, you ain’t got any excess household income.  Just sayin’.  I understand the tax, I understand what they’re doing, but excess household income was a stupid choice of words!  Okay I’m done.)

 

Let’s stick with our single guy making $25,000 a year.  (It would be nice if he got a raise in real life, but it keeps the math easier for this if he doesn’t.)  I’m not changing the thresholds either, only the healthcare tax.

 

Now the formula looks like this:

25,000 – 9,750 = $ 15,250

15,250 x .02 = $305 But now the minimum health insurance payment is $325 so the bite is a little harsher.

 

For 2016 – the minimum penalty will be $695 or 2.5% of your income. Using the same numbers from before:

15,250 x .025 = $ 381

 

So by 2016, our single guy will be paying a $695 tax for not having health insurance.

 

Now just to put a different perspective on it, let’s say our young man here gets a nice promotion and is making $100,000 by 2016, what happens to him then?

 

100,000 – 9,750 = $90,250 excess household income

90,250 x .025 = $2,256 that’s the tax he’ll pay for not having health insurance.

 

So if you want to get a good estimate of what your tax bill will be for not having health insurance, you’ll need to follow three steps:

 

1.  Figure your excess household income

your income   –   your filing threshold = excess household income

 

2.  Take your excess household income and multiply it by the percentage in the table for whatever year you’re looking at.

 

3.  Compare the number you came up with to the minimum amount listed in the table.  You’re going to pay the higher amount.

 

Here’s the table:

 

Year        minimum penalty         percentage excess household income

2014           $ 95                              1.0%

2015           $325                             2.0%

2016           $695                             2.5%

After 2016 it will be indexed for inflation.

Filing thresholds for 2012 (that’s the latest I’ve got)

Single:                                $9,500

Head of Household:        $12,450

Married Filing Jointly:    $19,500

 

(Note:  the filing thresholds are higher for people over 65 – but if you’re over 65 you should qualify for Medicare and this won’t be an issue for you.  Also, these amounts go up by $3,800 (the dependent exemption amount) per 1st and 2nd child.

 

On Friday I’ll address some of the other taxes associated with the Health Care Act.  I think I’ve already thrown enough math at you for one day now. Besides, this stuff makes me dizzy!