What I’m Asking My Clients Regarding the ACA

Image courtesy of user Nemo on Pixabay.com
Image courtesy of user Nemo on Pixabay.com

The Affordable Care Act is understandably causing much angst among tax preparers. I’m one of those anguished preparers.

I’ve noticed, in looking at the stat tracking for this blog, that there are tax pros coming here in search of what questions they should be asking clients regarding the ACA. (Note: prior to this blog post, you won’t find this topic addressed in any prior posts by me, but somehow Google is directing people to my blog anyway.)

Here’s what I’m asking on the organizer I give to clients:

  1. Where did you obtain insurance: Employer; Insurance Exchange; Medicare/Medicaid; Private policy; I do not have insurance. (I also include in bold that they should be prepared to provide me a copy of their insurance card.
  2. If you were covered by insurance, were you covered all 12 months of 2014? If not, how many months were you uninsured?
  3. If you are married, was your spouse covered by insurance, and if so, where did they obtain coverage?
  4. Are your children or other dependents covered by insurance, and if so, where did they obtain coverage?
  5. If you are not covered by insurance, did you apply for a hardship exemption?
  6. If you receive a subsidy from an insurance exchange, please provide the Form 1095-A.
  7. If you happened to receive any other type of Form 1094 or 1095, please provide it.

Sometimes it feels like I should be asking more. But I honestly don’t know what those additional questions would be.

It’s been a slow start to the season for me, as I have only worked on 4 tax returns so far. All 4 taxpayers have insurance, and only one got insurance through an exchange. That taxpayer is waiting on the Form 1095-A before we can proceed. I don’t anticipate any ACA issues with that one or the other 3.

Almost all of my clients have insurance through employers, so I’m hoping — knock on wood — that the ACA might be just a nuisance and not a nasty part of tax season for me. But it’s still extremely early!

Iowa Trust Fund Tax Credit for 2014 Tax Returns

Image courtesy of user Nemo on Pixabay.com
Image courtesy of user Nemo on Pixabay.com

The Iowa Trust Fund Tax Credit is back for another year on Iowa tax returns, but it’s not as generous.

The credit this year is $15 per person or $30 for a married couple filing a joint return. Last year, the credit was $54/person.

The reason for the decrease is because of the formula the state uses for calculating how much the credit is worth. The credit is based on how much money is in the “Iowa Trust Fund” and how many taxpayers were eligible to claim the credit in the prior year.

From Iowa Code Section 422.11E(3):

The credit shall be equal to the quotient of the amount transferred to the Iowa taxpayers trust fund tax credit fund in the applicable fiscal year, divided by the number of eligible individuals for the tax year immediately preceding the tax year for which the credit in this section is allowed, as determined by the director of revenue in accordance with this section, rounded down to the nearest whole dollar.

The credit is non-refundable. For more information, check out the story I did on the credit last year. (In the examples in that post, simply insert “$15″ everywhere you see $54.)

 

Ridiculous IRS Situations I’ve Recently Dealt With

lion-159448Here are just a few of the more ridiculous things I’ve dealt with involving the IRS over the last few months.

Will Our Refund Ever Come?

A client in a same-gender marriage filed an amended tax return in October 2013. They’re still waiting on their refund.

The IRS had a question about something on the return, which we answered months ago. Since July, the client has periodically gotten letters stating that the IRS needs “45 more days” to review their information.

I’ve tried calling. I’ve written letters. Nothing helps.

My understanding is that the IRS Taxpayer Advocate will only take things like this on if the client is suffering from a financial hardship by not receiving the refund (and they explained that “financial hardship” means the client is, for example, on the verge of being foreclosed on for not paying the mortgage).

My client is not in desperate financial straits … they just want this amended return processed. It’s been 15 months now.

But the client waits and waits.

We Need 45 Days, And We’ll Send Letters With Odd Dates on Them

A client filed an amended tax return in August 2014. In the fall, they got a letter saying the IRS needed “45 more days.”

Of course!

The issue was resolved in December, which is great. But even that was weird.

On December 21, the client got a letter in the mail – the letter was dated December 29.

The December 29th letter (received December 21st) said the client’s refund would be coming in the next two weeks.

A few days after the 21st, the client got their refund.

IRS Seemingly Loses $4,000 Check

A client filed their 2013 tax return in June 2014 and paid more than $4,000 in taxes owed. A few weeks later, the IRS sent the client a collection letter saying that the client owes more than $4,000 and containing the usual threats.

I wrote a letter to the IRS, including the check number and the date the IRS cashed the check, and telling the IRS to cease and desist with the collection attempts and instead review their records to find out what happened to the check.

The client got several “we need 45 more days” letters.

Finally a few weeks ago, the IRS sent a letter saying they found the payment, it had accidentally been misapplied in their system, and apologizing for any inconvenience.

Does Nebraska Recognize Same-Sex Marriages for Taxes?

map-43787_1280Question from a website visitor: I live in Nebraska and am in a same-sex marriage. My spouse and I got our marriage license in Iowa. Can we file our Nebraska taxes as a married couple.

Short answer: no.

Longer answer: Nebraska is one of the few remaining states that still has a constitutional amendment prohibiting same-gender marriage. As long as that stands, Nebraska doesn’t recognize same-sex marriage.

This means, couples in a same-sex marriage who have a Nebraska filing obligation CANNOT file that Nebraska tax return as a married couple.

Couples in this situation will need to:

  1. File their federal tax return as married
  2. Create two “mock” single person federal tax returns
  3. Use those mock returns to file two Nebraska tax returns as single people

What About Multiple States?

Plenty of people who live in western Iowa cross the Missouri River and work in Omaha. To a lesser extent, some people in the Omaha area work in Iowa.

If that person is in a same-sex marriage, the steps are the same as outlined above, except the Iowa tax return is filed as married, because Iowa recognizes same-sex marriage.

The Nebraska return is filed as “single” regardless of whether the person lives in Nebraska or they live in Iowa, and regardless of how they file their federal and Iowa tax returns.

For more information, see this page on the Nebraska Department of Revenue website.

Image courtesy of user Nemo on Pixabay.com

A Brief History of Marriage in the Tax Code, Part 2: Taxes in 1913

wedding-rings-150300_1280This post is part of a long-term project I’ve been working on regarding the history of marriage in the tax code.

As I finish sections of the research paper I’m working on, I’ll post them here. This is a big project, one that will likely take years, literally, to finish, so I can’t guarantee when the next post on this topic will appear.

—–

In Part 1, I talked briefly about how taxes worked back in 1913. In this part, I want to dive a little deeper.

The tax brackets were broad from 1913 through 1916. For example, a tax rate of 1% applied to taxable income of $0-$20,000. Adjusted for inflation, a taxpayer could have income of nearly $465,000 and still be in the 1% range of the tax bracket.

The rate increased to 2% on income between $20,001-$50,000. The top rate was 7% and applied to taxpayers with taxable income of more than $500,000 (the modern-day equivalent of $11.6 million).

Dual-income married couples had little reason to file separately, because the vast majority of them fell in the 1% range of the tax bracket.

Example 1:

John and Jane are a married couple. John has taxable income of $10,000; Jane has taxable income of $5,000. In 1913, their tax-filing options were: file a joint return showing $15,000 of taxable income, or file separate returns. Either way, they would arrive at the same amount of tax owed:

  •         $10,000 x .01 =$100 tax; $5,000 x .01 = $50 tax; Total tax $150

OR

  •         $15,000 x .01 = $150 total tax

In 1913, 97.6% of married couples filed joint returns (out of 278,835 tax returns filed by married couples in 1913, 272,153 were joint returns [or returns of one-income couples]; 6,682 were separate returns). Source: a study by a certain “Miss Coyle” in a Treasury Department staff memo. Ms. Coyle’s complete memo can be found at this link: http://taxhistory.tax.org/Civilization/Documents/marriage/hst28695/28695-1.htm

Exemption Amounts

Not only were the tax brackets broad, but many Americans were exempt from owing taxes because of generous exemption amounts. The exemption amounts were $3,000 for a single person or $4,000 for married couples (the equivalent of about $70,000 and $93,000 in modern-day dollars). A person with income below those amounts owed no tax and did not need to file a tax return.

Big Changes on the Horizon

America entered World War I in 1917. Wars take money. Congress changed the tax code with the Revenue Act of 1917.

Exemption amounts were slashed. The simple tax bracket of 1913 was replaced with a more progressive bracket with 21 marginal rates (yes, 21!) ranging from 2% to 67%.

Millions of people were drawn into the tax code, and taxes became more of a burden.

This ties into our discussion of marriage in the tax code.

We’ll dive deeper into the 1917 changes in Part 3.