With the recent Supreme Court decisions regarding the Affordable Care Act and same-sex marriage, I thought a summer update was in order.
AFFORDABLE CARE ACT (ACA)
Exchanges and Subsidies
Refunds on penalties paid. There were constant rule changes and issues with subsidies and penalties for those who did and did not get health insurance for 2014. In the end, someone who got a subsidy that was too much based on their actual income versus what they told the health-insurance exchange had to repay up to $600. There are a few exceptions, and some needed to pay back far more. For those who did not get health insurance, the rules changed mid-stream during tax season. In the final ruling for 2014—made in the middle of March—anyone who did not get health insurance in Maine does not have a penalty. Most people should have automatically received an adjustment from IRS at this point, but if I calculated one for you based on the pre-March ruling and you have not received a refund of this penalty, please let me know.
SCOTUS decision. The subsidies for health insurance for people in states that did not open their own health-insurance exchanges were recently upheld by the United States Supreme Court. This was an excellent decision for residents of such states that neither opened exchanges nor expanded Medicaid. Had the Supreme Court found against these states, there is no doubt that the costs to Maine taxpayers would have escalated due to having to open and maintain an exchange—but also because we would have been forced to expand Medicaid. As it stands, we have full freedom of choice with no penalties as long as we reside in a state that does not expand Medicaid. It is important to remember that there are other laws that require all hospitals to provide free and reduced care for all residents of Maine based on income; the threshold for this is very high, so we have no need for expanding Medicaid. As well, all drug companies have programs that provide needed drugs for free or reduced costs.
High-income households. For 2015, “high income” households will have a health insurance penalty for being “rich.” It will be increasing, and it does not matter whether you have health insurance or what state you live in. Unfortunately, the income formula is very complex, as it takes into account wages, passive income, capital transactions, and status (married, single, or head of household). It is not as simple as what you hear on the news. Those of you who had the penalty in 2014 can expect it to increase greatly for 2015. You may also expect a 3% penalty on investment real estate sold or if you are fortunate enough to have a taxable gain from selling your home (which is not going to happen anytime soon for most of us).
Future ACA changes. Many of you are expecting a radical change—even elimination of the Affordable Care Act—if the Republicans regain control of the White House and Congress. In order for the law to go away it would take a supermajority in both the House and Senate. This is because the ACA is a bill passed under the federal government’s right to collect and pass tax law without remuneration or consideration of states’ rights granted under the Sixteenth Amendment to the U.S. Constitution. At best, changes would come that make deductibles and exclusions more transparent; at worst, which is what I expect from Congress, rule changes will make it even more confusing and ultimately more expensive than it is, through increases in administration costs which are already currently exceeding 30%.
For same-sex couples that are married (I have seen nothing that in the Supreme Court’s recent decision that affects civil unions), you can now count on Social Security and Veterans Benefits; however,if you had a previous spouse prior to your current spouse, remember that the same rules apply as do to straight couples. If you have questions, please contact the Social Security Administration and/or Department of Veterans Affairs, since I do not keep up with their rules (tax law is complicated enough).
Filing status. For 2015 and going forward, same-sex couples must now claim “Married Filing Jointly” or “Married Filing Separately” for federal and state tax purposes; you will no longer be single. If you continue to claim single, you will be committing tax fraud and will be charged with a crime. Tax-qualified benefits paid by your employer also now qualify for the married exemption for all of 2014; as with straight couples, be sure to check with your payroll department for a necessary adjustment if you have your spouse on your employer’s benefits.
Inheritances and pensions. Inheritance and pension transfers on death are now treated the same as well. Regulations to ERISA (the Employee Retirement Income Security Act) will be updated soon, so if you have a pension and are married your spouse will have rights to your pension even if you divorce. Marriage will follow you now from state to state and you are married in all states even if they do not formally recognize gay marriage, and you must file as married in those states if you move. Equality has arrived.
Trusts and Reverse Mortgages
More and more people have been asking me about trusts and reverse mortgages.
Trusts. There is a huge misconception that trusts are tax efficient, but that has not been true since 1976. In fact, trusts are the highest tax rates available. Between taxes and the legal, accounting, and trustee fees, most trusts benefit the government, the lawyer, and the accounting and bank people far more than it does the beneficiaries. Trusts do have a place; I am not opposed to them as long as you understand that the sole purpose of a trust is to control assets after your death or mental disability. For tax purposes, control of the assets must be a third party unrelated to the creator of the trust.
Reverse mortgages. A reverse mortgage is a legal way for bankers to get your home for less than half of its value and to control your life and property through the contract. There is never a good reason for a reverse mortgage. I will gladly go over short- and long-term options that are easy, cheaper, and more practical for you if you are considering a reverse mortgage.
Business owners should know that accelerated depreciation rules are back to normal, meaning that no more than $25,000 of new purchase(s) may be deducted under 179 and that most vehicles purchased after Sept. 15 are limited to $4,050. All leases where you expect to own the item at the end of the lease are deductible under depreciation. The payments are not deductible and never have been, but crooked salesmen continue to make false claims about lease payments.
AATABS WEB SITE
I hope to build a section on our Web site, www.aatabs.com, for newsletters so that you can read them anytime and even check to see if my previous predictions were accurate. I would also like to email newsletters in the future, so if you provide me your email I will update my system.
As always, please call if you have a tax question.