Posts Tagged ‘HealthCareLegislation’

IRS: We’ll Trust You on Health Insurance for 2015 Because…

Monday, December 28th, 2015

Earlier today I saw a tweet from Joe Kristan:

The delay didn’t surprise me; I felt that given this was the first year that Form 1095-B and 1095-C were required that there would be issues. But I felt that taxpayers would eventually need to provide the forms to tax professionals.

I was wrong.

From Notice 2016-04:

Similarly, some individual taxpayers may be affected by the extension of the due date for providers of minimum essential coverage to furnish information under section 6055 on either Form 1095-B or Form 1095-C. Individuals generally use this information to confirm that they had minimum essential coverage for purposes of sections 36B and 5000A. Because, as a result of the extension, individuals may not have received this information before they file their income tax returns, for 2015 only individuals who rely upon other information received from their coverage providers about their coverage for purposes of filing their returns need not amend their returns once they receive the Form 1095-B or Form 1095-C or any corrections. Individuals need not send this information to the Service when filing their returns but should keep it with their tax records. [emphasis added]

Do note that taxpayers aren’t getting a complete free ride here. The IRS reserves the right to challenge taxpayers who say they had coverage but didn’t (which is why the notice states to keep the information with the tax returns). However, given that the IRS can’t force taxpayers to pay penalties regarding health insurance coverage, it’s possible the IRS won’t be looking at this for 2015.

This is good news for tax professionals and taxpayers in another regard. We won’t have delays regarding filing returns because taxpayers haven’t received Forms 1095-B or 1095-C as long as they’re aware of their health insurance coverage. That’s a very good thing for all.

Oops Gets Bigger

Friday, February 20th, 2015

Or, first California, now the United States.

Last week I reported on Cover California’s error impacting an estimated 100,000 individuals who received incorrect Form 1095-A’s. It turns out that was just the tip of the iceberg. As reported by AP:

About 800,000 customers got the wrong tax information from the government, the Obama administration said Friday, and officials are asking those affected to delay filing their 2014 returns.

This represents one-fifth of the Form 1095-A’s sent out by the federal exchange. That means there are a lot of people who can’t correctly file taxes until the corrected 1095-A’s are sent out. That should hapen in a couple of weeks but there’s an issue that’s implicit in the AP story: The government isn’t sure how the error happened. If that’s the case there’s an obvious question; how do you know that the ‘corrected’ 1095-A’s are correct?

Given that the majority of Americans would like to see ObamaCare go to the scrap heap, I’m sure these new revelations will inspire more confidence in the law. Given further that it is also quite likely that the majority of those who received subsidies for health care will have to repay some to all of the subsidy on their tax returns, I’m sure even more people will embrace ObamaCare….

DC Circuit Court of Appeals Deals ObamaCare Major Blow: Federal Exchange Tax Subsidies Axed

Tuesday, July 22nd, 2014

The Court of Appeals for the District of Columbia dealt the Obama Administration a major blow today when the court ruled 2-1 that only state health exchanges plans are eligible for tax subsidies. The IRS had promulgated a rule that health exchanges run by the federal government were eligible for the subsidies.

Here is the conclusion of the primary opinion:

We reach this conclusion, frankly, with reluctance. At least until states that wish to can set up Exchanges, our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly. But, high as those stakes are, the principle of legislative supremacy that guides us is higher still. Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process. This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.

The basic issue is that the Affordable Care Act (aka ObamaCare) allows a tax credit for exchanges established by a state. Are federal exchanges established by a state? The court ruled they weren’t.

UPDATE: The Fourth Circuit ruled in a similar case that the IRS rule was valid. This is almost certainly heading to the US Supreme Court with a decision probably next June.

While this decision will be appealed (to either an en banc panel of the DC Circuit Court of Appeals or the US Supreme Court), it appears sound. The law is what’s written, and neither the Administration nor the IRS can avoid such bright lines.

This is likely to cause more headaches for both taxpayers and tax professionals next year. It is almost certain this case will be appealed, and the appeals will likely not be resolved until next Spring at the earliest. Will tax credits be allowed for an Exchange in, say, Kansas, where the Exchange is run by the federal government? I have no idea. Both California and Nevada have exchanges run by the state, so subsidies in these states appear legal. However, Nevada will be moving to a federal exchange for 2015 so this could have a major impact then (2015 returns prepared in 2016).

The Tanning Tax: Alan Greenspan Gets It Right (Again)

Sunday, April 27th, 2014

Alan Greenspan, the former chairman of the Federal Reserve, has the wonderful quote:

Whatever you tax, you get less of.

It’s something our Congresscritters might take to heart…but I doubt it. Today, let’s look at the tanning tax.

This tax is one of the many ways that Congress had to pay for ObamaCare (aka the Affordable Care Act). Like almost everything else with ObamaCare, it’s not working as expected. The tax was predicted to generate $200 million annually. Instead, it’s took in $91 million in 2012 (the last year there are statistics for).

In this Politico article, Barton Bonn, Head of the American Suntanning Association, notes,

It’s effectively a price increase for our customers…Anybody knows that if you increase the price on a product or service, some people are not going to show up after the price increase, and that’s what occurred.

I’m not sure Mr. Barton is correct; I suspect some in Congress do not understand the law of supply and demand. In any case, it’s just another of the many tax flaws with ObamaCare.

Pass the Popcorn, Please, II

Wednesday, November 20th, 2013

As ObamaCare and its troubles dominate the news, lurking in the background is the IRS scandal. The Chief Counsel of the American Center for Law and Justice (ACLJ) wrote an op-ed on FoxNews that noted the lawsuit filed by the ACLJ isn’t going to be dropped. Jay Sekulow, the Chief Counsel, noted five reasons why the IRS scandal won’t go away. I’m going to focus just on his fifth point:

Fifth, the IRS targeting scandal is directly relevant to the mother of all policy disasters, ObamaCare. With the IRS set to function as ObamaCare’s enforcement arm, every story of corruption, incompetence, and malice casts doubt on the IRS’s ability faithfully and lawfully discharge its responsibilities within our health care system. [emphasis in original]

Eliana Johnson of the National Review had two tweets last night that highlight this issue. Here’s the first:

IRS source tells me that “last thing in the world anybody wants right now is IRS connected to that pile of crap at”

Here’s the second:

IRS source says agency still working to link IRS sys to HHS and CMS. “Our guys can’t move until HHS and CMS get their crap together.”

President Obama promised that the website would be functioning by month-end. It’s apparent to almost everyone that is not going to happen. Meanwhile, individuals need to enroll by December 15th in order to have coverage by January 1st; the back-end payment system has apparently not yet been built! (The key point in the testimony begins at about 3:20):

If health care weren’t such a major issue this would be laughable. Unfortunately, it is a major issue. I have not talked with many individuals at the IRS regarding health care and the IRS’s role in ObamaCare. I notice that in today’s IRSAC report that IRSAC identified as its very first issue the IRS’s funding level. IRSAC rightly noted that, “Reducing the IRS’s budget constrains IRS effectiveness and efficiency, which results in taxpayers’ loss of respect for the agency and our voluntary tax system.”

I identified this issue earlier this month. I’ll repeat what I said then:

For the IRS to function effectively, it needs both a reasonable budget and to be apolitical. It’s vital that the Department of Justice go after individuals who turn the IRS into a political organization from an apolitical one. Yet the current Administration apparently doesn’t see the urgency in this issue. That’s a huge mistake, and one that will definitely come back to haunt them and all Americans. We need a well functioning IRS…and given what the Administration is doing (and not doing), it’s very likely the budget for the IRS will continue to shrink.

The Obama Administration needs to give more than lip service to the investigations of the IRS scandal. Does anyone really believe that the Department of Justice is doing anything in regards to this? The budget of the IRS will not be increased until the scandal is resolved. As Mr. Sekulow noted, the IRS scandal and the troubles of ObamaCare are directly linked.

The individuals I have dealt with at the IRS are normal hard-working people doing jobs. The IRS deserves better than what it’s getting from the Obama Administration. IRSAC’s recommendation is laudable, but Congress’s cutting the IRS’s budget is also reasonable until the scandal is resolved. The onus here lies on the current Administration. I suspect IRSAC will be repeating their recommendation in next year’s report.

Coming Attractions: When the IRS Writes New Law When They’re Not Allowed To

Tuesday, October 22nd, 2013

The IRS is part of the Executive Branch of government. The Executive Branch can’t write law–they can issue regulations based on laws passed by the legislative branch (Congress) and then only when Congress authorizes it. There’s an issue percolating in the courts which is likely going to cause a huge headache throughout the country: tax credits for federal health care exchanges.

Today, a federal court judge in Washington denied the Administration’s request to stop a lawsuit challenging the IRS’s interpretation of the ability to give tax credit subsidies on federal health care exchanges. US District Judge Paul Friedman denied a preliminary injunction but did order the case tried on an expedited basis; he said that he expects to issue a ruling by February. Earlier this year a judge in Oklahoma also denied an Administration dismissal request in a similar case. There are two other cases filed on this matter.

Jonathan Adler of the Volokh Conspiracy notes the issue succinctly:

The IRS rule contravenes the plain text of the PPACA, as the statute only authorizes tax credits (and subsidies) for the purchase of insurance in an exchange “established by a state” under Section 1311 of the law…Supporters of the IRS rule claim that Congress could not have intended that Americans in dozens of states would be unable to obtain tax credits to help them purchase insurance. They’re right. Congress intended for every state to create its own exchange, as PPACA supporters said time and again, but states refused. Now that their assumption has been proven wrong, this does not provide an excuse to rewrite the plain statutory text.

This matters because in tax when a statute says “x,” it’s “x.” A good example of this is some of the ludicrous ways the Alternative Minimum Tax impacts individuals. Judges have stated in their rulings that these make no sense but because it’s written into the statute, there’s no choice on this matter: Until Congress changes the law, they’re stuck. I expect the same thing to happen here. Of course, Congress could change the law but the chance of that happening is equivalent to the chance of snow in Las Vegas in July.

Assuming that this suit is successful, it will strike at the heart of the mandates in the law. Assuming this ruling comes in February, there will be even more of a mess with the law. The ObamaCare rollout has hardly been something one could call “smooth.” Proponents have been hopeful that the light they’re seeing is the end of the tunnel. To me, it looks like an oncoming train.

44 Days

Sunday, October 20th, 2013

44 days isn’t much time. It’s about a month and a half. Yet in the bizarre world of the Affordable Care Act (aka ObamaCare), it’s a big deal. Over the coming weeks I’m going to be looking at various provisions in light of the current law and the current difficulties–perhaps impossiblities–of individuals to actually sign up and obtain a policy. Consumer Reports is suggesting that perhaps a solution to signing up is to wait a while–at least a month; hopefully by then the software glitches will be gone.

Anyway, back to the point of this post, 44 days. Nancy Pelosi famously said, “But we have to pass the bill [ObamaCare] so that you can find out what is in it.” Well, there are some interesting deadlines in ObamaCare:

December 15th: Date you need to be enrolled by for coverage to take effect on January 1, 2014 [1];
February 15, 2014: Date you must have coverage by in order to be exempt from the Individual Mandate Tax; and
March 31, 2014: Final date to enroll for calendar year 2014.

The Obama Administration was unaware that someone who enrolls on February 16, 2014 will be subject to the individual mandate penalty tax until it was pointed out to them. The penalty for 2014 is $95 or 1% of Adjusted Gross Income, whichever is greater. I suspect for much of my client base the 1% of AGI will be greater, perhaps far greater than $95. Consider an amateur gambler who has $100,000 of gambling wins and $100,000 of gambling losses and who makes $100,000 of salary. He’s looking at a $2,000 penalty. Still, given the cost of health insurance under ObamaCare that might be a more financially prudent choice.

But do be aware that the true deadline is February 15th, not March 31st. It’s yet another quirk in the law.

[1] It is unclear if dates that fall on weekends–December 15th falls on a Sunday–cause the deadline to be extended a day. As best as I can tell, the answer to that is no…but I did not read the 3,000 page legislation.

It’s Only $67 Million that We Can’t Find…

Sunday, September 29th, 2013

Have you ever lost something? Of course you have–we all have had experiences where we can’t find that paper we need. Of course, just after we get the second copy of the paper we find the original (Murphy’s Law at work). I’m sure most of us have misplaced some money or your wallet. However, I doubt that most of us have misplaced $67 million.

Earlier this week TIGTA, the Treasury Inspector General for Tax Administration, issued an audit on the Affordable Care Act. The report, dated September 18th, was sent out on the 25th and is titled, “Affordable Care Act: Tracking of Health Insurance Reform Implementation Fund Costs Could be Improved.”

I put the report aside until this morning, and was stunned when I read this paragraph:

Some Affordable Care Act Implementation Costs Were Inaccurate or Not Tracked and Supporting Documentation Was Not Always Maintained

Our review found that the tracking of costs related to the ACA implementation could be improved. Specifically, we found that costs charged to HIRIF funding relating to direct labor were sometimes inaccurate and not always substantiated by reliable supporting documentation. We also found that the IRS did not track all costs associated with implementation of the ACA, including costs not applied to the HIRIF. Specifically, the IRS did not account for or attempt to quantify approximately $67 million of indirect ACA costs incurred for FYs 2010 through 2012. Indirect costs include, for example, providing employees with workspace and information technology support.

There’s more, too. “The IRS did not track all costs associated with the implementation of the ACA.” Those indirect costs were not tracked. The IRS, which is not flush with funds, had the ability to get funding for indirect ACA costs by using funds from a $1 billion Health Insurance Reform Implementation Fund (HIRIF). However, IRS management did not believe that indirect costs should be recovered from HIRIF…so the IRS (and we, the taxpayers) are out those funds.

On the bright side, the IRS agreed with TIGTA’s recommendations in the report and will be tracking these costs in the future. Unfortunately, the HIRIF is likely gone for future years.

This is yet another black eye for the IRS.

The Affordable Care Act and Gamblers: A Bad Bet

Saturday, September 21st, 2013

The Affordable Care Act (aka ObamaCare) is a complex law. For those who gamble, both professionally and as amateurs, there will be a multitude of impacts. The law includes twenty new taxes. Let’s take a look at how these will impact gamblers.

First, the good news (about the only good news in this post): Gambling income is not impacted by the new Unearned Income Medicare Contribution Tax (UIMCT).

That’s about it for good news. The UIMCT will impact gamblers–especially amateur gamblers–indirectly. Suppose you’re an amateur gambler and have $300,000 of winning sessions and $300,000 of losing sessions. While the gambling income itself will not be subject to the UIMCT, the winning sessions will cause such an individual to pay this tax on any unearned income (besides gambling) that he has (e.g. investment income).

The new law requires the purchase of health insurance or you have to pay a penalty. That penalty in 2013 is $95 or 1% of Modified Adjusted Gross Income (MAGI), whichever is greater. Consider an amateur gambler who makes $40,000 in his day job but has $50,000 of winning sessions and $40,000 of losing sessions. His MAGI might be $80,000; 1% of that is $800.

But it gets worse. There are subsidies (tax credits) available to lower income individuals. But those subsidies are based on MAGI, and the gambler’s MAGI is artificially high; no subsidies would be in his future. (Of course, the current ObamaCare software cannot ‘reliably determine’ enrolles’ eligibility for the subsidies….)

Now let’s consider a successful professional gambler who is making, say, $150,000. He’s young (say 23) and doesn’t have health insurance. Given that the penalty would be $1,500 a year, he should consider obtaining insurance. This could be through his parents’ coverage (individuals under age 26 must be offered coverage through their parents’ plan), or through one of the Exchanges that should be available later this year. Indeed, anyone who is making good money should strongly consider doing this. If someone is making $1.5 million, the decision is easy: the $15,000 penalty would be very significant.

There’s one more category of individuals for which there are almost no answers today: expatriates. Consider a professional gambler who lives abroad in, say, Hungary. He’s a US citizen. He’s not eligible for a US-based plan (he’s not in the US). His Hungarian health insurance plan is fine for him, but does it comply with US law?

For now, this is likely not a problem for some. The Departments of Labor, Health and Human Services, and Treasury realized this and issued “transitional relief” that exempts group health insurance coverage through 2015; it appears that most current plans will suffice. However, it’s not so clear for self-employed expatriates: Do they need coverage? Will coverage an individual has in their country of residence suffice? I don’t know the answer, and I doubt many do today.

If this sounds like a mess, good: It is.

So far, I’ve covered just two of the 20 new taxes in ObamaCare. However, most of the other new taxes are on businesses in the health care industry and won’t directly impact individuals. There is one other issue I do want to cover: the IRS’s ability to collect the individual insurance mandate penalty.

Believe it or not, there is no method that the IRS has to force people to pay the tax directly. The IRS can send you notices, but it appears you can ignore these! However, the IRS can offset tax refunds to pay the penalty. There’s also the obvious question (which doesn’t have an answer): Say you file a tax return and owe $5,095 ($5,000 in tax and $95 for the health insurance penalty). You pay $5,000. Can the IRS apply the money first to the health insurance penalty so you owe $95 in unpaid tax? Or must they apply the payment first to the tax? The courts will likely have to decide that one.

As I’ve written several times, “It’s unpopular, unworkable, and insane.” It remains horribly unpopular with the public. A Democratic Senator believes that the implementation of the new law will be a train wreck (and nothing I’ve seen makes me disagree with him). There’s almost no chance of the law being repealed while President Obama is in office, so we’ll have to deal with the train wreck for at least three more years.

Does the New Unearned Income Medicare Contribution Tax Impact Amateur Gamblers?

Sunday, September 23rd, 2012

Over two years ago the Patient Protection Act–aka Obamacare–passed Congress. At the time, no one knew what was in the law. Famously, then Speaker of the House Nancy Pelosi (D-CA) said that, “We have to pass the law to know what’s in the law.” Really?

Well, back in March 2010 I thought that the law would impact amateur gamblers. I based this on the title of the provision and how Congress wrote and the IRS interpreted the Kiddie Tax. The Kiddie Tax is also a tax on unearned income. The exact title of the law is the Unearned Income Medicare Contribution Tax. Since the Kiddie Tax is theoretically a tax on investment income but it applies to amateur gamblers, I felt that the IRS would interpret this law similarly.

However, that does not appear to be the case. Section 1402 of the law notes that it is on 3.8% of the lesser of:

‘‘(A) net investment income for such taxable year, or
‘‘(B) the excess (if any) of—
‘‘(i) the modified adjusted gross income for such taxable year, over
‘‘(ii) the threshold amount.

So what is Net Investment Income? Section 1411(c) has the definition:

‘‘(c) NET INVESTMENT INCOME.—For purposes of this chapter—
‘‘(1) IN GENERAL.—The term ‘net investment income’ means the excess (if any) of—
‘‘(A) the sum of—
‘‘(i) gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade
or business not described in paragraph (2)….

Based on how the law is written it will not apply to “Other Income” such as gambling income, sweepstakes, and contests.

Thus, my initial fear back in 2010 of how the law would be interpreted should be wrong.

I should note that the IRS has yet to issue most of the regulations on Obamacare, so they could interpret this provision differently. However, I think that would be very unlikely. Additionally, it is very possible that some tax software will make errors in this calculation. The Kiddie Tax, a tax on unearned income, uses a different basis than this tax. A lazy software writer might not notice the difference so this is definitely something I’ll be checking when we get to 2013 returns. (This new tax goes into effect with 2013 tax returns filed in 2014.)