Individual Requirement to Have Insurance and State Insurance Exchanges

As we near the open enrollment period for the individual insurance requirement, now is the time to become more familiar with what people without health insurance will need to do when October 1, 2013 arrives. Below are the highlights of what the Affordable Care Act requirements are for obtaining health insurance, how the enrollment process on a State Exchange will operate, and how the premium assistance subsidy will work.

Individual Requirement to Obtain Health Insurance

Everyone will be required to have health insurance that meets a minimum level of benefits beginning on January 1, 2014.

If a person does not obtain health insurance for 2014, they will be required to pay an additional tax when they file their 2014 Federal income tax return. The additional tax for 2014 will be calculated as the greater of:

• 1% of their income that exceeds their filing threshold based on their filing status; or
• $95 for the taxpayer and if applicable, the spouse and dependents not to exceed $285 for 2014. The additional tax for dependents under age 18 is $47.50 for 2014.

For a complete explanation of how the additional tax will be calculated, see the Individual Penalty for Not Having Health Insurance page on the CrossLink website.

State Exchanges and Premium Assistance Subsidy

People who do not have health insurance will be able to obtain it at the State Exchange located in their State of residence. The State Exchange will also determine the potential amount of premium assistance subsidy that individuals qualify for.

The subsidy is designed to help people pay for their 2014 health insurance premiums. It is essentially a pre-payment of the premium tax credit that will be calculated when they file their 2014 Federal income tax return.

Here is how the State Exchange will work:

• Most people will sign up with the exchange via the internet by creating an account and filling out an online application on their State Exchange's website.
• The Exchange will use the information from the application and their income from their 2012 Federal return to first determine if they are eligible for coverage under a government health insurance program such as Medicaid.
• If not eligible for a government program, the exchange will determine what their subsidy is.
• Finally, the person applying may select an insurance plan that is offered by their State Exchange.

For more information on State Exchanges, see the following pages on the Federal government's Healthcare.gov website:

• Welcome to the Marketplace
• Health Insurance Marketplace

Health Insurance Premium Subsidy
The Health Insurance Premium Subsidy is also known as the Advance Premium Tax Credit.

A person is eligible for a subsidy (advance premium tax credit) to help pay for their 2014 health insurance premiums if they obtain their insurance at a State Exchange and their income is between 100% and 400% of the Federal Poverty Line.

It is important to remind people that the subsidy does not pay for the entire premium and the subsidy is paid directly to the insurance company. Individuals must pay a minimum amount of the premium based on where they fall on the Federal Poverty Line.

The minimum amount a person must pay is calculated as a percentage of their income and it ranges from 2%, if they fall between 100% and 133% of the Federal Poverty Line, up to 9.5%, if they fall between 300% and 400% of the Federal Poverty Line.

For a more detailed explanation of how the subsidy is determined, see the Premium Assistance Subsidy page on the CrossLink website.

2013 Federal Tax Changes to Be Aware Of

Itemized Medical Expense Deduction Threshold Percentage Change
As part of the Affordable Care Act, the threshold percentage for when medical expenses are included as an itemized deduction on Schedule A was changed to:

• Taxpayers under 65: 10%
• Taxpayers 65 and older: 7.5%

Basic Changes
Business Mileage Rate for 2013: 56.5 cents per mile

Bonus Depreciation: 50% rate still applies

Capital Gains/Dividends Tax Rate:

• 0% for taxpayers in 10% or 15% tax brackets
• 15% for taxpayers in 25%, 28%, 33%, or 35% tax brackets
• New 20% rate for taxpayers in new 39.6% tax bracket

Standard Deduction

• Single: $6,100
• Married Filing Jointly: $12,200

For a complete listing of the basic yearly changes for 2013, see the Things to Know for Current Tax Year section of the Tax Resource Center on the CrossLink website.

New Provisions Affecting Higher Income Individuals
Individual Income Tax Rates

• Added new 39.6% rate when the AGI reaches:
• $400,000 - Single
• $450,000 - Married Filing Joint
• $425,000 - Head of Household
• $225,000 - Married Filing Separate
• The 10%, 15%, 25%, 28%, 33%, and 35% brackets were made permanent

Phase-Out of Itemized Deductions and Personal Exemptions
Beginning in 2013, the taxpayer's itemized deductions and personal exemptions will begin to be reduced when their adjusted gross income (AGI) reaches the following threshold amounts:

• $250,000 - Single
• $300,00 - Married Filing Jointly
• $275,000 - Head of Household
• $150,000 - Married Filing Separately

The reduction in Itemized Deductions will be calculated as the lesser of:

• 3% of the amount over the taxpayer's threshold amount; or
• 80% of the total itemized deductions

Personal exemptions will be reduced by 2% for each $2,500 (or fraction thereof) by which the taxpayer's AGI exceeds the applicable threshold amount.

For a complete listing of what Federal provisions have changed or what extender provisions are still in effect for 2013, see the Things to Know for Current Tax Year section of the Tax Resource Center on the CrossLink website.

Affordable Care Act Update - Employer Reporting and Penalty Provisions Delayed for One Year

The employer penalty and reporting provisions under the Affordable Care Act have been postponed for one year until 2015. The Administration explained that this delay was necessary in order to simplify the reporting requirements and to give employers more time to adapt their reporting systems and become familiar with the affordability and minimum value standards for the health insurance plans they offer their employees.

This means that for 2014, employers with 50 or more full-time employees will not be subject to a penalty if they do not offer health insurance to their employees, or if they do offer insurance and they fail to meet the affordability and minimum value standards.

Also for 2014, the employer reporting requirements relating to the health insurance an employer offers their employees will be voluntary. The employer reporting requirements will be required beginning in 2015.

It is important to note that this postponement of the employer penalty and reporting provisions does not affect the requirement that all individuals must obtain health insurance for themselves and their family beginning in 2014.

For more information, see the following:

• IRS Notice 2013-45 - Transition Relief for 2014 Under Sec 6055 and 6056 (Information Reporting) and Sec 4980H (Employer Shared Responsibility Provisions)
• July 2nd U.S. Department of Treasury Notes (Continuing to Implement ACA in a Careful, Thoughtful Manner)
• January 2nd White House Blog (We're Listening to Businesses About the Health Care Law)

IRS Update: Affordable Care Act: Employer Minimum Value Standard for Employer Health Insurance Plans

One of the requirements of the Affordable Care Act for a health insurance plan an employer offers their employees is that it meets the minimum value standard. If an employer plan fails to meet the minimum value standard, a large employer (50 or more full time employees) will be assessed a penalty.

The minimum value standard is met if the employer's plan pays 60% or more of the plan's share of the total allowed costs of the benefits provided under the plan.

Minimum value is calculated by dividing the anticipated covered medical spending of essential health benefits (EHB) coverage (for the population covered by a typical self-insured group health plan) by the total anticipated allowed charges for EHB coverage for a typical self-insured group health plan population. Read More

Click here to read the entire CrossLink Tax Update about the Employer Minimum Value Standard for Employer Health Insurance Plans.

Note: Modernized e-File (MeF) Scheduled Downtime - June 2013

This is a reminder that due to the current budget situation, the IRS plans to be closed on June 14, July 5, July 22 and August 30. The MeF system (Production and ATS) will not be available from 10:00 pm ET of the prior day until 9:00 am ET of the following day on these dates. For example, when the closure falls on a Friday, the system will be unavailable from 10:00 pm ET on Thursday until 9:00 am ET on Saturday.

MeF Production & ATS Downtime:
Shutdown is scheduled to begin on Thursday, June 13, 2013 at 10:00 pm ET and end at 9:00 am ET on Saturday, June 15, 2013.

IRS Update: Net Investment Income Tax for High Income Individuals

Beginning in 2013, a new 3.8% additional tax on net investment income will apply when a taxpayer's modified adjusted gross income exceeds the following thresholds:

• $250,000 for Married Filing Joint filers or Qualifying Widow(er)
• $125,000 for Married Filing Separate filers
• $200,000 for taxpayers that file Single or Head of Household

Modified adjusted gross income is defined as the taxpayer's adjusted gross income increased by the net amount of exempt foreign sourced income.

Investment income generally includes interest, dividends, capital gains, rental or royalty income, non-qualified annuities, income from businesses involved in trading financial instruments or commodities, and passive activity business income.

Click here to read the entire CrossLink Tax Update about the new Net Investment Income Tax.