Avoid Paying Affordable Care Act Penalties

The Affordable Care Act (ACA) allowing individuals to obtain at least minimal health insurance coverage went into effect in January 2014. However, if you did not purchase health insurance through ACA, you may have to pay a penalty with your 2014 federal income tax return.

There are several important exemptions. Here is a brief explanation of the most common:

Unaffordable coverage

The minimum amount you would have paid for employer-provided coverage or a “bronze level” plan exceeds 8% of your actual household income for the year.

Short coverage gap

You didn’t have coverage for less than three consecutive months during the year.

Income below filing threshold

Your gross income or household income is less than the applicable minimum threshold for filing a tax return.

Citizens living abroad and/or certain noncitizens

This exempts certain U.S. citizens, including those who spent more than 330 days abroad during a 12-month period and qualified noncitizen residents.

Incarcerated individuals

The requirement doesn’t apply to someone in a jail, prison, or similar penal institution.

Unaffordable aggregate self-only coverage.

The aggregate cost of self-only employer-provided coverage for two or more family members exceeds 8% of household income.

Coverage gap

If you had a gap in your coverage at the beginning of 2014 but enrolled in the marketplace before May 1, you’re exempt.

General hardship

Circumstances such as homelessness, eviction, foreclosure, domestic violence, death of a close family member, or unpaid medical bills prevented you from obtaining coverage.

This list is not all-inclusive. For other exemptions call Green Financial Services.

Social Security and Taxes

If you receive Social Security benefits, you may have to pay federal income tax on part of your benefits. The IRS recently published some key data for taxpayers receiving Social Security to help you determine whether or not you need to pay taxes on your benefits.

Form SSA-1099

If you received Social Security in 2014, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits.

The IRS has a helpful tool that you can use to see if any of your benefits are taxable. Visit the IRS website and use the Interactive Tax Assistant.

Tax Formula

Here’s a quick way to find out if you must pay taxes on your Social Security benefits: Add one-half of your Social Security to all your other income, including tax-exempt interest. Then compare the total to the base amount for your filing status. If your total is more than the base amount, some of your benefits may be taxable.

Only Social Security  Base Amounts 

If the only income you received during 2014 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a federal income tax return. If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. The three base amounts are:  

  • $25,000 – if you are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from your spouse for all of 2014
  • $32,000 – if you are married filing jointly
  • $0 – if you are married filing separately and lived with your spouse at any time during the year


Consider an Offer In Compromise (OIC)

If you have have tax dept but don’t know how to address it, an Offer in Compromise (OIC) allows you to settle your tax debt for less than the full amount you owe. It may be a good option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS states that it will consider your unique set of facts and circumstances such as:

  • Payment ability
  • Your income
  • Your expenses
  • Any assets or equity

The IRS will usually approve an OIC when the amount offered represents the most they can expect to collect within a reasonable period of time.

Tax payers should explore all other payment options before submitting an OIC.  Many people choose to hire a tax professional to help them file the paperwork. Make sure the tax professional has experience with the process and check their qualifications.

If you think you may need an OIC, the IRS has an “Offer in Compromise  Pre-qualifier Tool,” that can be very helpful.

Top 12 Tax Scams of 2015

Recently the IRS released it’s list of 2015 “Dirty Dozen” tax scams. Aggressive telephone scams continue coast-to-coast so it is important to be aware of them.

Below is the entire list but for lengthier information on each scam you can visit a special section on IRS.gov.

The twelve main tax scams include: 

  • Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.
  • Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise. Taxpayers should be wary of clicking on strange emails and websites. They may be scams to steal your personal information.
  • Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim. 
  • Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns.
  • Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order.
  • Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims.
  • Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations.
  • Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns.
  • Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered.
  • Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return.
  • Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds.
  • Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000.

Call Green Financial Services if you have questions about any of these scams or you think you have fallen to prey to one of them.