New Tax Developments: Will You Be Affected?
July 28, 2015
The following is a summary of important tax developments that have occurred in the past three months that may affect you, your family, your investments and your livelihood.
Please call us for more information about any of these developments. We can help you determine how to take advantage of favorable developments and minimize impacts of those that are unfavorable.
Supreme Court upholds subsidies for health care purchased on the federal exchange.
The Supreme Court determined by a 6-3 vote that premium tax credits (also known as health insurance subsidies) under the Affordable Care Act (ACA), are not limited to taxpayers who live in states that have established their own health insurance exchange, but are also available to taxpayers living in states that rely on the federal exchange. While acknowledging that the challengers’ arguments were strong, the Supreme Court found the language of the law to be ambiguous in light of the context and structure of the premium tax credit provisions, as well as the role of the subsidies in the ACA as a whole. With these considerations in mind, the Supreme Court concluded that allowing the subsidies for insurance purchased on any exchange was consistent with the purpose of the ACA.
Supreme Court declares nationwide right to same-sex marriage.
The Supreme Court, in a 5-4 decision, struck down four statewide bans on same-sex marriage, holding that the Fourteenth Amendment requires all states to license a marriage between two people of the same sex. Tax ramifications of this decision include simplified tax filing for some taxpayers, and new filing choices for those who were in a state-sanctioned domestic partnership or civil union before the Supreme Court’s decision.
New trade laws include wide variety of tax provisions.
On June 29, President Obama signed two major trade bills into law: (1) the Trade Preference Extension (TPE) Act of 2015, and (2) the Trade Priorities and Accountability (TPA) Act of 2015. These new laws contain a variety of tax provisions including the following:
- An extension of refundable health coverage tax credit (HCTC), which makes health insurance more affordable for certain trade-affected workers, Pension Benefit Guaranty Corporation (PBGC) payees, and their families by paying part of their health insurance premiums.
- Effective for tax years beginning after Dec. 31, 2014, the TPE Act provides that any taxpayer who takes advantage of the foreign earned income exclusion for a tax year can’t claim the refundable portion of the child tax credit for that year.
- Effective for distributions from a government pension-type plan made after Dec. 31, 2015, the TPA Act broadens the category of eligible governmental workers who can qualify for the penalty tax exception to include specified federal law enforcement officers, customs and border protection officers, federal firefighters, and air traffic controllers who reach age 50 and separate from service.
- The tax rules also impose a penalty on taxpayers who fail to file correct information returns (such as IRS Form 1099) with the IRS. There’s a separate, but parallel, penalty on taxpayers who fail to provide the payee with a correct copy of the information return that was required to be filed with the IRS. The penalties are based on the duration of the delinquency and whether the delinquency was intentional, and are subject to maximums that depend on the size of the taxpayer.
Regulations explain new tax-advantaged ABLE accounts.
For tax years beginning after Dec. 31, 2014, states may establish tax-exempt “Achieving a Better Life Experience” (ABLE) accounts, which can be created by disabled individuals to support themselves or by families to support their disabled dependents. Contributions to the accounts are made on an after-tax basis (i.e., contributions aren’t deductible), but assets in the account grow tax-free. Withdrawals are tax-free if the money is used for qualified disability-related expenses. A nonqualified distribution is subject to income tax and a 10% penalty on the part of the distribution attributable to earnings. Each disabled person is limited to one ABLE account, and total annual contributions by all individuals to any one ABLE account can be made up to the inflation-adjusted gift tax exclusion amount ($14,000 for 2015).
Next year’s inflation adjustments for health savings accounts (HSAs).
The IRS provided the annual inflation-adjusted contribution, deductible, and out-of-pocket expense limits for 2016 for HSAs. For calendar year 2015, the limitation on deductions is $3,350 (no change from 2015) for an individual with self-only coverage. It is $6,750 (up from $6,650 for 2015) for an individual with family coverage under a HDHP. Each of these amounts is increased by $1,000 if the eligible individual is age 55 or older.
Certain taxpayers can file delinquent FBARs without penalty.
“U.S. persons” (U.S. citizens or residents as well as many entities) who have financial interests in or signature authority over certain financial accounts maintained with financial institutions located outside of the U.S. must file a Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year. The IRS will not impose a penalty for the failure to file the delinquent FBARs if the taxpayer: (a) properly reported on its U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs; and (b) has not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
It never hurts to double-check your tax situation—especially in light of developments such as these—so please don’t wait to give us a call.