Category Archives: Affordable Care Act

Employer Shared Responsibility Penalties

Rachel OwensAugust 27, 20190 Comment

by Tony Pandiscia

The Internal Revenue Service “IRS” has recently been issuing “226J Letters” to businesses to conduct inquiry into whether compliance was properly maintained under the Affordable Care Act [“ACA”] for the 2016 Tax Year. While the IRS has been authorized to issue this correspondence in the past, the 2016 Tax Year is significant because it marks the first year following the sunset of favorable “transitional relief” rules that had been available in prior years for businesses that were not in compliance with the ACA. When a business is not in compliance with the ACA healthcare mandate, the result is exposure to the “employer shared responsibility penalty” [or “ESRP”].

A business may incur the “ESRP” under the ACA when it is an applicable large employer [“ALEs”] whom fails to offer:

“minimum essential” health insurance coverage to its full-time employees and their children, or
insurance coverage that is “considered affordable”.

Technical rules help determine exactly whom is an ALE [i.e. how to properly count the “full-time equivalent” employees], what would be considered “minimum essential” [health insurance coverage], as well as whether the premiums charged employees were “considered affordable”. Most businesses confronted the myriad of health insurance options designed to meet ACA compliance beginning back in 2013 when the law was initially announced, although various provisions of the law effectively delayed the assessment of penalties until after January 1, 2015 to give businesses ample time to implement suitable health insurance programs and permit the IRS opportunity to develop adequate record keeping and tracking mechanisms.

It is important to understand that receipt of a the 226J Letter is not the actual assessment of the liability. Instead it is a notification from the IRS that based on certain records in its database, the business may be subject to the ESRP and the business now has the responsibility to formally contest or confirm the assertion. [Typically the records the IRS has analyzed include Forms 1094, 1095, W-2 along with the Premium Tax Credit database that is populated through the “Exchange” where individuals obtained coverage through “Healthcare.gov”.] The formal response to the 226J Letter must be submitted to the IRS using Form 14764, plus attachments. Included in the 226J Letter will be a “response deadline” [generally 30 days from the date of the letter] for which a business owner must submit the response or by default the IRS will assume no additional evidence is available to refute the ESRP assertion.

Due to the complexity and time-constraints involved, upon receipt of a 226J Letter a business owner should immediately contact a Tax Professional to assist with the response process. The format of the Form 14764 allows for submission of explanations and substantive documentation that may help update or correct the IRS’ records, as well as counter (if applicable) the government’s ESRP assertion. As with other IRS dispute resolution matters, reliance on a qualified Tax Professional will permit the business owner to avail him/herself of all applicable ESRP response strategies (including extensions of time, available exemptions, review of formula computations and ratios, and even installment payment plan negotiation attempts, as necessary). Langdon & Company LLP is well-versed in ESRP issues, so feel free to connect with us if you have any questions.

The Interaction of Pell Grants and Tax Credits

Pam WilliamsApril 1, 20150 Comment

by Rebecca Lunn pell grant

Federally funded Pell Grants assist millions of students annually. However, for students with these scholarships, the process of claiming tax credits is complex and often confusing. As a result, students with the greatest financial need may be foregoing additional tax benefits available.

Based on an IRS publication (see link below), under current law a Pell Grant student can choose to allocate his or her Pell Grant funds either to qualified tuition and related expenses (QTRE) or to living expenses (up to the amount of actual living expenses), which constitutes taxable income. Most students and parents do not understand this option, so often families allocate all QTRE to the Pell Grant funds, leaving little or no QTRE to allocate to an educational tax credit.

For 2014, the American Opportunity Tax Credit (AOTC) provides a 100% credit for the first $2,000 of QTRE and a 25% credit for the next $2,000, for a total credit up to $2,500. As noted in the IRS publication, if a student’s QTRE exceeds scholarships by $4,000, the student would still qualify for the maximum AOTC credit. However, if the QTRE exceeds scholarships by less than $4,000, the student may benefit from including some of the Pell Grant in taxable income in order to claim a larger AOTC. It is important to note that any scholarship that is allocated to living expenses must be included in taxable income on the student’s (not the parent’s) tax return.

If you need additional assistance in understanding how to obtain the maximum tax benefit with a Pell Grant scholarship, the tax department at Langdon & Company LLP is pleased to assist.

Please click here for detailed examples of the interaction of Pell Grants and tax credits.

Rebecca Lunn ([email protected]) is a Senior in our Audit Department working primarily with the non profit, and health care industries.

college diploma

The Scoop on Educational Tax Credits

Pam WilliamsOctober 15, 20140 Comment

by Taylor Elliott

books There are several educational tax credits and deductions available, but how and when do they apply? The IRS recently published the article “IRS Summertime Tax Tip 2014-23” to help taxpayers understand the tax benefits that are available when educational expenses have been incurred during the year. The following excerpt from that article outlines some key factors:

American Opportunity Tax Credit. The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty percent of the AOTC is refundable. That means that you may be able to get up to $1,000 of the credit as a refund, even if you don’t owe any taxes.
Lifetime Learning Credit. With the LLC, you may be able to claim a tax credit of up to $2,000 on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.
One credit per student. You can claim only one type of education credit per student on your federal tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For example, you can claim the AOTC for one student and claim the LLC for the other student.
Qualified expenses. You may include qualified expenses to figure your credit. This may include amounts you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more about the additional rules that apply to each credit.
Eligible educational institutions. Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
Form 1098-T. In most cases, you should receive Form 1098-T, Tuition Statement, from your school. This form reports your qualified expenses to the IRS and to you. You may notice that the amount shown on the form is different than the amount you actually paid. That’s because some of your related costs may not appear on Form 1098-T. For example, the cost of your textbooks may not appear on the form, but you still may be able to claim your textbook costs as part of the credit. Remember, you can only claim an education credit for the qualified expenses that you paid in that same tax year.

The article also points out that income limitations as well as residence status must be considered. If you, a family member, or dependent has recently started college or gone back to school, please contact our office so that our dedicated tax professionals can help you navigate your particular facts and circumstances to determine what educational benefits are best for you.

Taylor Elliott is a tax manager with Langdon & Company LLP. She specializes in tax compliance and planning.

Affordable Care Act: Additional Taxes – Effective 2013

Pam WilliamsOctober 6, 20140 Comment

by Lee Bowman

In addition to the healthcare mandates that become effective in 2013, there are two new taxes within the Act that begin in 2013 to help offset the costs of the healthcare act. They are the 3.8% Net Investment Income Tax and the .9% Medicare Tax on wages and self-employment income.

Net Investment Income Tax: The 3.8% net investment income tax will only affect taxpayers when their modified adjusted gross income (AGI) exceeds $250,000 for married filing jointly taxpayers and surviving spouses; $200,000 for single taxpayers and head of household filers, and $125,000 for married taxpayers filing separately. If you claim the foreign earned income exclusion, the excluded amount will be added back to your AGI to arrive at your modified adjusted gross income.

Net investment income includes interest, dividends, royalties, annuities, rents and net gains from property sales. Wages and net income from an active trade or business are not included in net investment income. Tax-exempt bond interest is excluded from the 3.8% net investment income tax. If your modified AGI exceeds the above amounts, you will be subject to the 3.8% tax which will be applied to the lesser of 1) your net investment income for the year or 2) the excess of your modified AGI for the tax year over your threshold amount. This tax will be in addition to the income tax that applies to that same income.

When selling your primary residence, you may be able to exclude up to $250,000 of net gain or up to $500,000 for MFJ taxpayers. This excluded gain will not be taxed. Gain in excess of those exclusions may be taxed. Distributions from Roth IRAs are excluded, however distributions from regular IRAs will be included in your modified AGI but is not subject to the 3.8% net investment tax, ut could cause other income to be subject to the 3.8% tax. When making estimated income tax payments, taxpayers must include the 3.8% net investment income tax in their estimated payments in order to avoid a penalty.

Please note that the modified AGI amounts listed above will NOT be adjusted for inflation.

0.9% Tax on Wage and Self-employment Income: The 0.9% additional Medicare Tax applies only to employees and self-employed individuals, not employers. The tax applies to wages in excess of $250,000 for MFJ taxpayers; $125,000 for MFS, and $200,000 for all other filers.

Once an employee’s wages exceed $200,000, employers must withhold the additional 0.9% tax from their wages. This may not be enough if the employee has another job, or if his spouse has wage or self-employment income. The taxpayer may file a new Form W-4 with his employer to have additional taxes withheld.

Self-employed taxpayers will pay the additional 0.9% tax on their self-employment income using the same wage brackets listed above. The 0.9% tax is in addition to the 2.9% Medicare tax on self-employment income; however, the taxpayer will not be allowed to deduct 50% of this additional Medicare tax on the front page of their return.

Because these new taxes are not inflation adjusted, more taxpayers will pay these taxes in the future. The current Federal tax schedules can be found here. 2013 NC Income tax rate is 5.7% on all NC taxable income.

Langdon & Company LLP is full of knowledgeable tax staff that would be happy to assist you with your tax needs. Please contact our office to get more information.

Lee Bowman ([email protected]) is a Manager in our Accounting Services practice at Langdon & Company LLP. She has over 25 years of experience in taxation and also specializes in multi-dimensional corporate accounting across various states.

Obama Administration Delays Part of Health Law’s Employer Mandate

Pam WilliamsFebruary 11, 20140 Comment

The U.S. Government announced an additional delay of the employer mandate associated with the Affordable Care Act (“ACA”) for certain medium sized employers. ACA is intended to extend health coverage to uninsured Americans, partly by imposing penalties on individuals and businesses not seeking coverage. Most individuals face a tax penalty for not having healthcare coverage in 2014. Continue reading Obama Administration Delays Part of Health Law’s Employer Mandate

Three Ways to Know the Difference Between an Employee and Contractor

Michael MillerAugust 26, 20130 Comment

In order to tell the difference between a part or full time employee and independent contractor, it is important to consider the three main factors listed below. These factors will determine the responsibilities a business has towards a person who may be providing a service to the business, as well as the rights of both parties involved.

Continue reading Three Ways to Know the Difference Between an Employee and Contractor

Healthcare Insurance Exchange Delays?

Pam WilliamsJuly 18, 20130 Comment

On the heels of the Administration’s delay of the Employer Mandate (Play or Pay) until 2015, watchdogs commented to the House of Representatives Oversight and Government Reform committee. Representatives from the Treasury Inspector General for Tax Administration and the GAO said that the October 1, 2013 deadline for beginning the healthcare exchanges would be difficult to complete.

Under the Act, individuals will be able to buy health insurance through the new exchanges beginning October. The exchanges were designed to assist people in complying with the Individual Mandate which requires individuals to have insurance or pay a fine on their 2014 tax return. Many states, including North Carolina, have refused to set up the healthcare exchanges, which puts more burden on the federal exchange.

Obama administration officials have assured the committee that they are on track.

More to come…

Our tax experts have a strong understanding of the tax laws. Contact Langdon & Company LLP today by calling 919-662-1001 or fill out the online contact form and a representative will be in contact shortly.

Obama Administration Delays Implementation of Key Part of the Affordable Care Act

Michael MillerJuly 8, 20130 Comment

The Administration announced recently that it will provide an additional year before the ACA mandatory employer and insurer reporting requirements begin. Scheduled to become effective January 1, 2014, the new effective date is January 1, 2015. Formal transition guidance will be published in the coming weeks. The Administration intends to strongly encourage employers and insurers to voluntarily implement the information reporting in 2014.

Because of the delay in reporting requirements, the Administration has also delayed the “shared responsibility payments” until 2015. Under ACA’s “Employer Mandate,” employers with more than 50 full time employees would have to begin to offer affordable health insurance as defined by the Act or face substantial penalties or “shared responsibility payments.” The delay means these penalties will not apply to 2014.

For more information, read the complete article here. We offer tax service professionals available to help guide you and your business through the ACA..

“The Affordable Care Act”, Now That We Know It’s the Law, What Does it Mean?

Michael MillerDecember 31, 20120 Comment

The Patient Protection and Affordable Care Act [“PPACA”] (also sometimes referred as “The Affordable Care Act” or “ObamaCare”) was originally enacted in 2010 but essentially became significant legislation this past summer when in a landmark decision, the Supreme Court by a margin of 5-4 upheld the law as constitutional. We at Langdon & Company LLP, a Raleigh CPA firm have tax professionals available to help guide you and your business through planning for the Act.

Continue reading “The Affordable Care Act”, Now That We Know It’s the Law, What Does it Mean?