The IRS will open up for business on time this year, accepting tax forms on Tuesday, and for most of us filing will be pretty much the same as last year.
The state sales tax and other deductions were extended by Congress late last year, making tax law substantially the same as it was a year ago. IRS forms already reflect the last-minute legislation, as does the tax software that supports those forms.
And while this is the first year of the tax implications of the Affordable Care Act, most Americans will only have to certify that they had health insurance last year.
“Over 80 percent of filers will just check a box and file as normal,” said IRS Commissioner John Koskinen on a conference call with reporters this week.
Companies and insurers are not required to send out IRS forms that show proof of health insurance — that comes next year — but if a taxpayer is audited or has other tax issues this season, they may have to show proof of purchase through a receipt or other documentation, he said.
Koskinen said that despite budget cutbacks, the IRS estimates that it will conduct around one million audits this year, in addition to the letter audits automatically processed when irregularities occur between returns and forms sent directly to the IRS from employers and other income sources.
Next year, all insured Americans should get the new Form 1095 to show proof of insurance either from their insurer, employer or the healthcare marketplaces, said Jackie Perlman, a tax research analyst with H&R Block. Some employers will send out the form this year, and anyone who bought insurance on the marketplace will receive it by the end of the month, Perlman said.
“If you get it, keep it with your tax records like a 1099 or W-2,” she said. “You don’t need to send in the paper with your return.”
One important change for 2014 filers who bought insurance on the federal marketplace is that they will no longer be able to use the 1040EZ form, Perlman said.
“You will have to go to a 1040A or the regular 1040,” she said, because the 1040EZ does not allow for the reconciliation between any tax subsidies received for insurance premiums and the estimated income given when buying the insurance. Around 80 percent of those who bought insurance on the exchange last year received subsidies to help pay for premiums.
That reconciliation between income and what is owed or refunded on taxes is no different than what most taxpayers do on their filings every year, said Koskinen.
“About 75 percent of filers get a refund every year,” he said. “Only a small percentage will estimate accurately on their income during the year.”
If your income was not correctly estimated when you purchased insurance on the exchange, you could either owe more on your federal taxes or receive a bigger refund, Perlman said.
“You may have to pay some or all of the subsidy back,” she said. “But there are payback caps in the Affordable Care Act.”
Tax software will do the calculations for you or your preparer, she said. If you did not have health insurance in 2014, you will owe a penalty unless you received an exemption, which can still be filed for last year, Perlman said.
“Many will qualify for exemptions,” she said, including those who don’t have to file taxes because of low income levels or a hardship like a lost job or death of a working family member last year. Exemptions can be obtained by going to www.healthcare.gov and looking up the new IRS Form 8965.
If you didn’t have insurance for at least three months last year, you will be paying a tax penalty. The penalty is the greater of either one percent of your household income or $95 per adult and $47.50 per child.
The IRS has set up a special page on its website at www.IRS.gov to answer questions about the healthcare law tax implications, Koskinen said. He advises using the website before calling the IRS as budget cuts will cause long wait times on the phone.
“You’ll get answers faster on the web,” he said. “Call us as a last resort.”
Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net
Where to get tax help
AARP Tax Aid Program: AARP’s program has 35 sites locally in public libraries and senior citizen centers where trained and certified volunteers provide tax preparation and electronic filing services for anyone, regardless of age or income. Call 211 to find a location. Appointments are recommended, but walk-ins are welcome. Starts Jan. 26.
United Way VITA program: Starting today, the Volunteer Income Tax Assistance program of United Way of Fort Worth includes 14 sites in Tarrant County for tax preparation for elderly filers or those with income of $53,000 or less, a disability or limited English. Tax preparers who speak Spanish and Vietnamese are available. Call 211 for a location or go to www.FreeTaxDFW.com.
Free File. The IRS provides free tax software and e-filing through its Free File program for those with a household income of $60,000 and below. Software comes from commercial preparers including TurboTax and H&R Block. Spanish versions are available. Go to www.irs.gov/freefile.
TaxAct. Offers free online tax software to all incomes for all tax forms at www.TaxAct.com. The Cedar Rapids, Iowa, software provider also provides free e-filing and tax help via email.