Beginning January 20, the U.S. Internal Revenue Service officially accepts tax filings. What are the new changes and requirements for tax filing in the U.S. for 2015? How should new immigrants respond and what specific actions should they take? The immigration experts at Worldway will provide a detailed analysis as follows:
Tax Filings Must Report on Obamacare
On January 8, 2015, the U.S. Department of Health & Human Services and the Treasury Department jointly announced preliminary filing methods. Any individual who purchased Obamacare through the Marketplace for the entire year of 2014 will need to fill out Form 1095-A when filing their 2014 tax return. If an individual did not have full-year coverage under Obamacare, they will need to fill out Form 8965.
The announcement indicated that nearly three-quarters of insured taxpayers receive "affordable health insurance" through their employers, and therefore only need to check "I had health insurance for the entire year of 2014" on their tax forms. However, millions of others who purchased insurance through the health exchange need to be aware that they must complete the required forms.
The Department of Health & Human Services stated that individuals who purchased health insurance through the marketplace in 2014 will receive Form 1095-A by early February of this year. This form will include critical information such as the list of family members who purchased insurance through the marketplace, details of monthly premium payments, and the amount of assistance received from the government for monthly premiums. Once completed, this form must be retained along with W-2 forms and other tax documents as important documentation for filing the 2014 tax return.
Adjustments Related to Completing Form 1095-A
Form 1095-A is used on individual tax returns to claim premium tax credits using Form 8962. Anyone who received premium assistance through advance premium tax credits or wishes to claim premium tax credits must complete Form 8962. Premium assistance is based on Modified Adjusted Gross Income (MAGI), which includes Adjusted Gross Income (AGI) plus foreign income exclusions and tax-exempt interest, plus all taxable income of dependents. As advance premium tax credits are based on estimated income, the actual income may be higher or lower than estimated, thus adjustments need to be made when filing.
When filing taxes, taxpayers must report their health insurance and premium assistance. If a taxpayer did not receive full advance premium tax credits or if their actual income is lower than their estimated income, they may use Form 8962 to calculate the remaining credit and apply it against their taxes. Conversely, if the calculated premium tax credit is below the amount advanced, the taxpayer will owe additional taxes.
If you are enrolled in Medicaid, Medicare, or the Children’s Health Insurance Program (CHIP), you will not receive this form.
If an individual’s health insurance purchased in 2014 was not in effect for the entire year from January 1 to December 31, they must fill out IRS Form 8956 at tax filing. Completing this form will show whether the taxpayer is eligible to apply for an exemption from penalties.
First-Time Penalties for Those Without Health Insurance
In fact, being without health insurance always involves financial risk: a single accident could lead to thousands of dollars in medical bills. Now, individuals without health insurance will also face penalties.
According to the Affordable Care Act provisions, all taxpayers must report to the IRS for the first time in 2015 whether they had health insurance in the previous year, and those without health insurance may face penalties for the first time. Moreover, next year's penalties will significantly increase.
For families whose income meets the tax filing threshold, the penalty for 2014 is no less than $95 per person or 1% of family income. However, in 2015 the penalty will surge to 2% of family income or $325 per person. By 2016, the average penalty per person is projected to reach $1,100. Individuals can use the tax policy center's ACA penalty calculator online to estimate potential penalties they may face.
According to the Associated Press, the ACA specifies 30 exceptions (primarily financial hardship) under which individuals without health insurance may be exempted from penalties. American citizens who primarily live and work overseas and spend more than 330 days abroad each year are not required to purchase health insurance; however, if they spend less than 330 days abroad, they must legally acquire health insurance.
Latest Tax Filing Items
On December 30, 2014, the IRS announced more than 40 tax rate adjustments due to inflation for 2015, including tax rate tables, taxable income, and certain rates adjusted for the cost of living. It is important to note that the new rates are for the 2015 tax year and will not take effect until filing in 2016, as the original standards will still apply for tax filing in 2015 for the 2014 tax year.
The following are the latest tax filing items and related tax rate tables for the 2015 tax year:
For the 2015 tax year, the income thresholds for single filers and married couples filing jointly at the 39.6% tax rate will be increased from $406,750 and $457,600, respectively, to $413,200 and $464,850.
In terms of the Standard Deduction, for the 2014 tax year, standard deductions for all taxpayers have been slightly increased. The limits for single filers and married individuals filing separately will rise from $6,200 and $12,400 to $6,300 and $12,600. The standard deduction for head of household will increase from $9,100 to $9,250.
For Itemized Deductions, the income threshold to qualify for this deduction in 2015 will be a minimum of $258,250 for individuals and $309,900 for married couples filing jointly.
In terms of Personal Exemptions, this amount will increase slightly from $3,950 to $4,000 in 2015.
The starting threshold for the Personal Exemption Phaseout (PEP) will be $258,250 for individuals and $309,900 for married couples filing jointly, with the phaseout ending at $380,750 and $432,400, respectively.
The Painful Tax Season
Because Obamacare is a new topic, many taxpayers and even accountants will have numerous questions. Initially, it was estimated that there would be an IRS extension due to this. However, the IRS recently announced that there will be no extension and they will officially begin accepting tax filings on January 20. The issue is that the health insurance marketplace and insurance companies have just received the finalized Form 1095, and there will be a learning curve and training process before it is distributed to taxpayers. Moreover, many people do not know how to apply for an exemption from health insurance. Accountants will also require time to familiarize themselves with filing Forms 1095 and 8962.
According to IRS estimates, due to budget cuts, the IRS’s phone service will decrease from 72% last tax season to 53%, meaning taxpayers will wait an average of 34 minutes on hold, while tax professionals may wait an average of 52 minutes. This will make it difficult for taxpayers and accountants to resolve issues encountered during the Obamacare tax filing process in a timely manner. It can be anticipated that 2015 will be a painful tax season for individual tax filers.
The Worldway Group, as a leading institution in the investment immigration sector, provides professional and attentive services that permeate every detail of the investment process for immigration to the United States. Upon the client’s first arrival in the U.S., the Worldway service center will provide comprehensive settling-in assistance, including: arranging airport pickups for initial check-in; assisting with bank account opening; assisting with social security card applications; helping to book hotels; assisting with flight bookings to the U.S.; helping to contact driving schools and providing information on the driver’s license exam; assisting with contacts for moving services; assisting in linking clients with real estate agents; and facilitating rental or purchasing arrangements, along with other related matters.
Additionally, Worldway will regularly hold various immigration-themed seminars based on clients' needs, including seminars on financial and tax planning for clients who have successfully immigrated to the U.S., professional tax consultation services provided by tax experts, and answers to clients' questions regarding all tax and asset allocation issues after immigrating to the U.S. For detailed inquiries, please call: 400-138-2929.
