Question about IRS and Obamacare

[AndyS]

My understanding is that the Obamacare supplements will be paid out
by the IRS when a citizen files his/her tax return. Is that correct ??

If so, then how do the 50% of Americans who do not pay Federal
Income Tax get their supplement ?

 

[JoeTaxpayer]

My understanding is that the Obamacare supplements will be paid out
by the IRS when a citizen files his/her tax return. Is that correct ??

If so, then how do the 50% of Americans who do not pay Federal
Income Tax get their supplement ?

A great many of those 50% only realize they have no Federal Tax burden
after they file, and get back whatever tax had been withheld along with
any refundable credits.
In other words, anyone qualifying for a Health Care credit would need to
file a return to get it.

 

[John Levine]

If so, then how do the 50% of Americans who do not pay Federal
A large subset of that 50% pay FICA, so they have to file anyway. The
canard about 50% "paying no tax" is deeply misleading, but there are
better places than this to argue about it.

A great many of those 50% only realize they have no Federal Tax burden
after they file, and get back whatever tax had been withheld along with
any refundable credits.
In other words, anyone qualifying for a Health Care credit would need to
file a return to get it.

I'd think that many toward the low end would also be eligible for EIC,
same issue. The ones who are so poor they owe no tax at all and have
no credits are likely to be eligible for Medicare or Medicaid.

 

[D.F. Manno]

A large subset of that 50% pay FICA, so they have to file anyway.[/QUOTE]

FICA liability in and of itself does not necessitate filing a return.

 

[Mark Bole]

A great many of those 50% only realize they have no Federal Tax burden
after they file, and get back whatever tax had been withheld along with
any refundable credits.
In other words, anyone qualifying for a Health Care credit would need to
file a return to get it.

No, your understanding is not correct.

Even if there really are "50% of Americans who do not pay Federal Income
Tax", why would you assume that every one of them is also going to
qualify for premium assistance (aka subsidy)? For starters, many of
those may already be covered through an employer.

According to my tax research service, people who need coverage will
apply for insurance through the exchange beginning this October, and at
that time, information about family size, household income, and federal
poverty level (FPL) is combined to determine if eligible for a subsidy.
Household income projection for 2014 will be made using 2012 tax
return info and/or other info provided directly by applicant.

To your specific question, the subsidy, if the insured is eligible, will
be advanced directly to the QHP (qualifying health plan), so it will not
go through the insured's hands.

When they file their actual 2014 tax return, the income projection will
be reconciled with actual income to determine if they got too much
premium assistance, or not enough. Those who got too much will have to
pay it back, those who were eligible for more will get a refundable
credit. So these folks will be required to file a tax return, not to
receive a subsidy, but only to "true up" (reconcile) the projection with
actual and settle the difference.

 

[AndyS]

When they file their actual 2014 tax return, the income projection will
be reconciled with actual income to determine if they got too much
premium assistance, or not enough. Those who got too much will have to
pay it back, those who were eligible for more will get a refundable
credit. So these folks will be required to file a tax return, not to
receive a subsidy, but only to "true up" (reconcile) the projection with
actual and settle the difference.

Thank you , Mark. I am assuming that a "normal" tax return will
be filed, the IRS will do the reconciliation, and either add to the
refund or send a bill for more money. It would be inconceivable
to me to ask the citizenry to do the reconciliation before filing
the return.

AndyS

 

[Mark Bole]

Thank you , Mark. I am assuming that a "normal" tax return will
be filed, the IRS will do the reconciliation, and either add to the
refund or send a bill for more money. It would be inconceivable
to me to ask the citizenry to do the reconciliation before filing
the return.

AndyS

Again, I think you might be mistaken. As posted in a previous thread,
it is reasonable to assume IRS will create something similar to
Massachusetts income tax Schedule HC, which has been used for a similar
purpose in that state for number of years now.

And taxpayers will receive some new type of information reporting form
to use when filing their tax, so it should be pretty simple and automatic.

I don't have cites on all of this, just my educated guess.

 

[Mark Bole]

I don't have cites on all of this, just my educated guess.

The link http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

has a lot of references to notices, rulemaking, proposed and final
regulations, FAQs, and so on.

That should be your next stop, after this newsgroup, of course.

 

[remove ps]

My understanding is that the Obamacare supplements will be paid out
by the IRS when a citizen files his/her tax return. Is that correct ??

If so, then how do the 50% of Americans who do not pay Federal
Income Tax get their supplement ?

Are you talking about the subsidies if you make less than 4 times the
poverty level? Many of the people who owe no federal tax have to file
a tax return to get a refund of all tax withheld. Anyway, there is a
process called advance EITC credit, which allows you to get your EITC
refund during the year, and thus a larger paycheck, see
http://www.irs.gov/uac/You-May-Be-Eligible-for-the-Advance-Earned-Income
-Tax-Credit. If it turns out you claimed too much EITC, then when you
file your tax return you have to pay the extra back. I think there
will be a similar procedures for the health insurance subsidies.

 

[Don Priebe]

Anyway, there is a process called advance EITC credit, which allows
you to get your EITC refund during the year, and thus a larger
paycheck, If it turns out you claimed too much EITC, then when you file
your tax return you have to pay the extra back. I think there will be a
similar procedures for the health insurance subsidies.

The Advance EIC process doesn't exist anymore. 2010 was the last tax
year it was available.

Don EA in Upstate NY

 

[Barry Margolin]

Are you talking about the subsidies if you make less than 4 times the
poverty level? Many of the people who owe no federal tax have to file
a tax return to get a refund of all tax withheld.

Wouldn't they write "Exempt" on their W-4 form to avoid having tax
withheld in the first place? People living paycheck-to-paycheck probably
can't afford to wait until the next April 15 to get all their
withholdings back, so I sure hope they take this option.

 

[jay_wiedwald]

Are you talking about the subsidies if you make less than 4 times the
poverty level? Many of the people who owe no federal tax have to file
a tax return to get a refund of all tax withheld. Anyway, there is a
process called advance EITC credit, which allows you to get your EITC
refund during the year, and thus a larger paycheck, see
http://www.irs.gov/uac/You-May-Be-Eligible-for-the-Advance-Earned-Income
-Tax-Credit. If it turns out you claimed too much EITC, then when you
file your tax return you have to pay the extra back. I think there
will be a similar procedures for the health insurance subsidies.

You're a couple of years late. The Advance EITC was terminated in 2011.

Jay Wiedwald

 

[Phil Marti]

Wouldn't they write "Exempt" on their W-4 form to avoid having tax
withheld in the first place? People living paycheck-to-paycheck probably
can't afford to wait until the next April 15 to get all their
withholdings back, so I sure hope they take this option.

Many do, but there's still the FICA/Medicare, which must be withheld. When we see relatively large income tax withheld we talk to them about adjusting W-4's, but some really like those huge checks.

Phil Marti
VITA Volunteer
Clarksburg, MD

 

[paulthomascpa]

When we see relatively large income tax withheld we talk to them
about adjusting W-4's, but some really like those huge checks.

It's just one of those things that can't be explained. They'd rather
struggle all year long to make ends meet and get a $2400 refund check than
to have an extra $200 a month in their take home pay.

 

[W. Baker]

: > When we see relatively large income tax withheld we talk to them
: > about adjusting W-4's, but some really like those huge checks.


: It's just one of those things that can't be explained. They'd rather
: struggle all year long to make ends meet and get a $2400 refund check than
: to have an extra $200 a month in their take home pay.
It might be regarded as a kind of forced savings, even if they spend it
all when they get it. Maybe they use it for a vacation or to pay off
holiday bills, or just to feel "rich" once a year.

Wendy Baker



: --
: Paul Thomas, CPA
: www.paulthomascpa.com
: Watkinsville, Georgia

 

[Stuart A. Bronstein]

: "Phil Marti" <prm20871@verizon.net> wrote

: > When we see relatively large income tax withheld we talk to
: > them about adjusting W-4's, but some really like those huge
: > checks.

: It's just one of those things that can't be explained. They'd
: rather struggle all year long to make ends meet and get a $2400
: refund check than to have an extra $200 a month in their take
: home pay.

It might be regarded as a kind of forced savings, even if they
spend it all when they get it. Maybe they use it for a vacation
or to pay off holiday bills, or just to feel "rich" once a year.

Yes, but it's forced savings where they earn no interest. These days
bank interest is so low it may not make a difference. But in times
of higher interest it could amount to hundreds of dollars.

 

[Kurt Ullman]

It's just one of those things that can't be explained. They'd rather
struggle all year long to make ends meet and get a $2400 refund check than
to have an extra $200 a month in their take home pay.

That's free money that I get back from the Fed's. At least I
finally got through to the kids that is their money that they have lent
interest-free to the Feds. And they, quite reasonably now a days,
mention that is pretty much the standard in money markets and they save
a higher percentage when they get it back in a lump and I am there to
hector them into saving it than they would if it came out every couple
of weeks. Sorta hard to argue with that logic (grin).

 

[JoeTaxpayer]

Yes, but it's forced savings where they earn no interest. These days
bank interest is so low it may not make a difference. But in times
of higher interest it could amount to hundreds of dollars.

Interest on savings may be low, but odds are most of the people getting
these refunds are paying 18% on their credit cards. So that $2000 refund
just cost them $360.

 

[W. Baker]

: >: > When we see relatively large income tax withheld we talk to
: >: > them about adjusting W-4's, but some really like those huge
: >: > checks.
: >
: >: It's just one of those things that can't be explained. They'd
: >: rather struggle all year long to make ends meet and get a $2400
: >: refund check than to have an extra $200 a month in their take
: >: home pay.
: >
: > It might be regarded as a kind of forced savings, even if they
: > spend it all when they get it. Maybe they use it for a vacation
: > or to pay off holiday bills, or just to feel "rich" once a year.

: Yes, but it's forced savings where they earn no interest. These days
: bank interest is so low it may not make a difference. But in times
: of higher interest it could amount to hundreds of dollars.

: --
: Stu
: http://DownToEarthLawyer.com

Of course, but, perhaps, forced savings is what helps them save anyting at
all. Of course it is not ideal and earns so interest, , but it may well
be the best they can do to save anything. BEtter woulde tose automatic
savings plans I remember form my youth when a set amout was withheld from
your take home pay and deposited into a bank savigns account. Won't do
too much towards makign big money, but also a way to have forced
savings(if it's not in my hands I can't spend it).

Wendy Baker

 

[Barry Margolin]

: >: > When we see relatively large income tax withheld we talk to
: >: > them about adjusting W-4's, but some really like those huge
: >: > checks.
: >
: >: It's just one of those things that can't be explained. They'd
: >: rather struggle all year long to make ends meet and get a $2400
: >: refund check than to have an extra $200 a month in their take
: >: home pay.
: >
: > It might be regarded as a kind of forced savings, even if they
: > spend it all when they get it. Maybe they use it for a vacation
: > or to pay off holiday bills, or just to feel "rich" once a year.

: Yes, but it's forced savings where they earn no interest. These days
: bank interest is so low it may not make a difference. But in times
: of higher interest it could amount to hundreds of dollars.

: --
: Stu
: http://DownToEarthLawyer.com

Of course, but, perhaps, forced savings is what helps them save anyting at
all.

They're only "saving" for about a year. When the refund comes, they
probably blow it on something frivolous, like finally paying all the
bills that they've gotten behind on because they didn't have enough
money in their weekly paychecks.