Tax Facts

This time of year, after the holidays are past and the cold and snow set in, we now have to deal with our income tax reporting responsibilities. I have had the pleasure of working in the tax preparation field for more than 30 years, the unusual cold and snow of this winter seems consistent with the new and many changes to the tax climate as well.

My first column focuses on the new health care law, the Affordable Care Act [ACA], or Obamacare. While rules about certain provisions seem to be changing on almost a daily basis, the law of the land is simple: starting Jan. 1, 2014, all Americans are required to have health insurance. If you have employer-sponsored insurance, Medicare, BadgerCare, or some other exempted coverage, you must now have health insurance or pay a penalty (actually, this is a new tax levied on your 2014 tax return).

The ACA provides for government subsidies to help pay for this insurance if you and your family your household income is less than 400 percent of the Federal Poverty Income level. This level is actually fairly high and is determined based on the number of covered individuals in your household. The “household income” is determined by looking at the adjusted gross income of those reporting income tax information to the IRS. The subsidy will work like this: you “estimate” your 2014 household income now, get a government subsidy set for you, and obtain the insurance.

Next year, when filing your 1040 tax return, there will be a reconciliation of the subsidy received against the subsidy your actual income would have allowed. If you received too much subsidy, you will pay the difference back on the tax return. If the subsidy was too little, you will get an additional tax credit.

If you are currently without health care insurance, you should immediately consult a social service Navigator to help find coverage. A shortcut we have found is the website drakehealth.com. Here you will find two calculators. One estimates the approximate government subsidy you may get and the net cost of insurance for you and your situation. The other calculator will determine your approximate penalty if you choose to go without insurance.

Again, when you file your 2014 tax return next winter you will see new forms verifying you have insurance, reconciling any subsidy with actual 2014 income, and one to calculate any appropriate penalty which may apply. The IRS is now the policing arm for the ACA, and all need to comply.

Rick Gaumer has taught college-level accounting and income tax subjects for the University of Wisconsin – Green Bay, University of Wisconsin – Milwaukee and Lakeland College for many years and is an expert on getting students prepared for the CPA exam. He now works as a tax consultant for the Leuthner Tax Office, an H&R Block affiliate located in Sturgeon Bay.