Tax day is here — and some people will pay more this year because of Obamacare.
The law’s biggest tax provision — billions of dollars in tax credits to help people cover the cost of their premiums — is already in effect, but doesn’t affect the taxes due on Tuesday. A handful of smaller provisions, mostly affecting wealthy households, will show up for the first time in this year’s filing.
Among this year’s changes: a 0.9 percent increase in Medicare taxes and a 3.8 percent surtax on investment income. Both are limited to high-income taxpayers, and both took effect for the first time in the tax season that just ended.
Most people won’t notice the extra Medicare tax because it was automatically deducted from their paychecks, but some could face a tax bill they did not expect, said Jackie Perlman, principal tax research analyst at the H&R Block Tax Institute.
The Affordable Care Act also raises the bar for writing off medical expenses. Previously, a tax deduction was available if medical expenses reached 7.5 percent of your income. Obamacare moved the cutoff to 10 percent for taxpayers younger than 65.
You might also notice that your W-2 lists the value of your health care plan, if you get coverage through your employer. That’s another Obamacare change. You don’t owe taxes on that amount — it’s included just to make people aware of how much health insurance actually costs.
“This year’s changes are relatively technical and have a narrow reach,” said Brian Haile, senior vice president for health policy at Jackson Hewitt. “Next year is a whole different kettle of fish.”
Next year’s filing will be the first time the Internal Revenue Service enforces the law’s individual mandate, which requires most taxpayers to either buy insurance or pay a penalty. There are several exemptions, including a waiver for people who can’t afford insurance.
Once the next filing season rolls around, most Americans will have to do one of three things: prove they had insurance; prove they qualified for an exemption; or pay a penalty — $95 or 1 percent of their income, whichever is higher.
People who received tax credits to cover part of their premiums will need to make sure the amount they received lines up with how much they should have gotten based on their actual income.
“Right now [the subsidy] is based on a forecast of their income; next year will be checking the forecast against reality,” said Mitchell Fox, director of product management at TurboTax. “That refund could go up or it could go down.”
Tax-preparation services are helping their customers figure out where they stand and what their options are, but there’s a wrinkle: The next open-enrollment window ends in February, well before most people file their taxes.
Uninsured people who file their taxes on the later end might not realize they owe a penalty until after the enrollment deadline — too late to sign up for coverage next year.
This is a concern particularly for low-income individuals who may need their tax refunds to afford insurance at all, Haile said.
“The important thing is to make sure you’re selling insurance when people have money to buy it,” he said. “For a lot of uninsured individuals, that’s only after they’ve gotten back their tax refund.”
For many uninsured individuals, the refund is quite substantial — $3,000 on average, according to Haile. If those consumers don’t file early enough or if tax season is delayed — as it was this year because of the government shutdown — they may be out of luck, both in getting insurance coverage and avoiding the tax penalty.
H&R Block runs a free health care check with all of its returns, helping uninsured customers see their coverage options and determine how big a penalty they might owe.
“The important thing for consumers at this point is, be careful of rumors and be careful of misinformation.”¦ If something sounds preposterous to you, maybe it is. ‘The IRS is going to come in and seize all your assets if you don’t have insurance’ — that’s not true,” Perlman said.
Other companies have invested in helping consumers sort through the health law’s impact as well. Jackson Hewitt has put a significant amount of its advertising budget toward ACA outreach and information. TurboTax has set up a site specifically for health-related concerns, along with a support tool to answer specific questions. The online guide has reached 5.3 million individuals, 1 million of whom were uninsured, the company says.
What We're Following See More »
Hillary Clinton hopes that television ratings for the candidates' acceptance speeches at their respective conventions aren't foreshadowing of similar results at the polls in November. Preliminary results from the networks and cable channels show that 34.9 million people tuned in for Donald Trump's acceptance speech while 33.3 million watched Clinton accept the Democratic nomination. However, it is still possible that the numbers are closer than these ratings suggest: the numbers don't include ratings from PBS or CSPAN, which tend to attract more Democratic viewers.
The US Fourth Circuit Court of Appeals on Friday overturned North Carolina's 2013 voter ID law, saying it was passed with “discriminatory intent." The decision sends the case back to the district judge who initially dismissed challenges to the law. "The ruling prohibits North Carolina from requiring photo identification from voters in future elections, including the November 2016 general election, restores a week of early voting and preregistration for 16- and 17-year-olds, and ensures that same-day registration and out-of-precinct voting will remain in effect."
An oil pipeline almost as long as the much-debated Keystone XL has won final approval to transport crude from North Dakota to Illinois, traveling through South Dakota and Iowa along the way. "The U.S. Army Corps of Engineers gave the final blessing to the Dakota Access pipeline on Tuesday. Developers now have the last set of permits they need to build through the small portion of federal land the line crosses, which includes major waterways like the Mississippi and the Missouri rivers. The so-called Bakken pipeline goes through mostly state and private land."
The U.S. economy grew at an anemic 1.2% in the second quarter, "well below the 2.6% growth economists surveyed by The Wall Street Journal had forecast." Consumer spending was "robust," but it was offset by "cautious" business investment. "Since the recession ended seven years ago, the expansion has failed to achieve the breakout growth seen in past recoveries. "The average annual growth rate during the current business cycle, 2.1%, remains the weakest of any expansion since at least 1949."