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Visit our News page for regular updates on tax regulation and the latest developments at our firm.

Federal Due Diligence Requirements

Congress recently passed legislation making some big changes to the Federal Due Diligence Requirements for tax return preparers. The Protecting Americans Against Tax Hikes (PATH) Act, which you’ve probably heard a lot about, was passed at the end of December last year and it expanded the Due Diligence requirements to the Child Tax Credit and American Opportunity Tax Credit, effective this filing season.

Changes in Circumstances and Advance Premium Tax Credits

There are some important reminders for taxpayers who receive advance payments of the Premium Tax Credit under the Affordable Care Act. People who have advance payments of the premium tax credit made to their insurance company on their behalf should report life changes to their Marketplace. Changes in circumstances that should be reported include moving to a new address and changes to income or family size. Reporting these changes will help individuals avoid large differences between the advance credit payments and the amount of the premium tax credit allowed on their tax return, which may affect their refund or balance due.

Affordable Care Act Reminders

Here are some reminders about the Form 1095-A exemptions from the requirement to have health insurance, and about the increase in the individual shared responsibility payment amount.

Importance of Form 1095-A
Form 1095-A - Health Insurance Marketplace Statement will be received by approximately 10 million individuals that obtained their health insurance at a Federal or a State Marketplace. This form is needed to complete Form 8962 - Premium Tax Credit, and for those who received a subsidy, to complete the reconciliation of the subsidy with the actual credit.

The 1095-A should be received by:

  • For those who used the Federal Marketplace – throughout January but no later than January 31, 2018
  • For those who used a State Marketplace – in early February 2018

A copy of the Form 1095-A will be available online in January (via their account on healthcare.gov) for those who used the Federal Marketplace. It may also be available online for those who used a State Marketplace.

Also, any taxpayer who received a subsidy must include Form 8962 with their federal tax return. If it is not included with the tax return the processing of the return may be delayed.

Health Care Coverage Exemptions
Many individuals who did not have health insurance for all or part of the year may qualify for an exemption. Therefore, it is important, before any penalty is calculated, that you determine whether they may qualify for a health care coverage exemption.

If an individual qualifies for a health care coverage exemption you must complete the applicable parts of the Form 8965 - Health Coverage Exemptions and include it with their federal tax return.

To see a full listing of the exemptions and whether the applicable exemption must be applied for at the federal Marketplace or can be requested when the federal tax return is filed click here. If an individual needs help determining whether they qualify for an exemption, a Find Exemptions tool is available on the healthcare.gov website.

Individual Shared Responsibility Payment
If it is determined that an individual does owe a penalty it is calculated as the greater of:

  • 2.5% of the individual’s income that exceeds their filing threshold (personal exemptions plus standard deduction for their filing status); or
  • A flat dollar amount that is assessed for the taxpayer, spouse, and dependents as follows;
    • $695 per taxpayer, spouse, and dependents over age 18
    • $347.50 for each dependent under age 18

The maximum family dollar amount is $2,085.

The penalty amount is limited to the annual national average premium for a bronze level health plan available through the Marketplace, which is $2,676 per individual ($223 per month per individual), with a cap of $13,380 for a family with five or more members ($1,115 per month). See pages 15 - 19 of the 2016 Form 8965 instructions for more information on how the penalty is calculated.

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