As the first year of health insurance through the new health care exchanges winds down, another new challenge is just beginning. The upcoming tax season will be the first year to report, claim, and reconcile the new health insurance premium tax credit. It will be a new, and in some cases challenging, addition to your 2014 tax return.

Health Insurance Tax Credit

The new health care premium tax credits are part of the Affordable Care Act (ACA), or Obamacare. The tax credits and health insurance subsidies are used to purchase health insurance through the new insurance exchanges. The tax credit adjusts the annual premiums you pay to a percentage of your household income.

New Health Insurance Tax Form

To claim the premium tax credit, you’ll get a new form in the mail this year. Your health insurance marketplace will furnish you with a Form 1095-A. You will need the form 1095-A to claim the health insurance premium tax credit on your tax return.

Update: Health Care Tax Form 1095-A May Contain Error: What to Do.

How to Claim the Health Insurance Premium Tax Credit

Once you receive your form 1095-A, you can claim your tax credit on your return. To calculate and claim your 2014 health insurance premium tax credit (PTC) you’ll need to file Form 8962. You will use form 8962 to complete the following steps:

Determine final annual income. On form 8962 you will calculate your tax credit based on your final Modified Adjusted Gross Income (MAGI) for the year from your tax return. MAGI currently excludes income that is tax deferred under 401ks.

Reconcile advance payments. If you received advance payments for the tax credit, in addition to calculating your PTC, you’ll have to reconcile the amount of the payments you received with the actual credit you should receive based on your 2014 income. The premium and reconciliation will be a monthly calculation.

Calculate tax credit or amount of repayment. If your income was higher than expected, you’ll have to repay the excess. There is a repayment limitation based on income. If you didn’t take advance payments, or if your income was lower than expected, you’ll receive a tax credit on your tax return.

Penalty for No Health Insurance

The penalty for no health insurance will also be reported on your 2014 tax form. To avoid the penalty, you’ll need to claim an exemption from the individual mandate and file form 8965.

Health Care Tax Credit Amounts

Tax credits are for household income between 100% and 400% of the Federal Poverty Level (FPL). Tax credits will be used to cap annual health insurance premiums for those who qualify. The contribution percent goes from 2% of income at the 100% of FPL to 9.5% of income at 400% of FPL. You can find the Federal Poverty Level income ranges for 100% of FPL to 400% of FPL to see the annual income in dollars.

Health Insurance Tax Credit Calculator

If you plan to use this tax credit and your income is near the cutoff, it will be very important to not only understand tax brackets, but also understand how the different income levels can dramatically impact your taxes. As soon as the tax credits are finalized, we will add the calculations to our tax calculator for next year so you can project and play with the tax credit based on various income levels.

More on the Health Insurance Tax Credit

You must file for the tax credit. Even if you do not normally file a tax return because you don’t meet the minimum income to file taxes, you’ll need to file a return to claim the health insurance tax credit or report advance payments.

Refundable. The health care tax credit is refundable, which means you can receive a tax refund even if the credit is more than your total tax.

Filing Status. Your health insurance credit will depend on your filing status. If you are married, you must file jointly to claim the health care tax credit. In addition, if someone else claims you as a dependent, you will not be eligible for the health insurance subsidies.

Delays. Because the tax credit will be based on getting new forms from the health insurance exchanges, and new calculations (which in some cases are circular calculations for the self employed) there is always the possibility of delays during tax season. Like always, we’ll keep you updated on any delays that the new forms will have on getting your refund.

More Health Insurance Tax Topics





In 2012, Small Businesses accounted for the employment of 52% of people in the United States. This means that small businesses drive a lot of the American economy. Because small businesses often have fewer resources than large corporations, there are lots of tax breaks and other help through associations such as the Small Business Association to offer assistance.

Still, a small business is a business in the eyes of the government and therefore is still responsible for taxes and certain minimum requirements when employing people. Let’s take a look at the new healthcare act, employer mandates, and how small businesses fit into it.

Employer Mandates in Obamacare

The Patient Protection and Affordable Care Act of 2010 (aka Obamacare) requires that large employers (with 50 full time employees or more) either offer a group healthcare insurance plan, or pay a penalty for not doing so. There are also requirements for any group healthcare insurance plan—minimum essential coverage—in order for the plan to count in the federal government’s eyes. These include insurance plan premiums costing no more than 9.5% of the employee’s income, as well as providing the minimum value of 60% of costs within the plan.

The penalty can be steep, especially with a lot of employees. The two types of penalties that can be assessed is either a strong penalty or a weak one. The strong penalty is assessed on large employers who do not offer any group health insurance plan at all. The weak penalty is assessed on large employers who offer a group health insurance plan that does not satisfy the minimum essential coverage requirements. Penalties can be up to $3,000 per employee.

I keep referencing large employers in this article; this is because if a business is deemed to be a small business by this Act, then they get a pass. On top of this, they may even receive health care tax credits.

What Defines a Small Business?

The Small Business Administration (SBA), was founded in 1953 with the goals to “aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns.” The association helps small businesses through its four primary functions: Access to Capital (Business Financing), Entrepreneurial Development (Education, Information, Technical Assistance and Training), Government Contracting (Federal Procurement), and Advocacy (Voice for Small Business). According to the SBA, a small business has no more than 500 employees for most manufacturing and mining industries, and no more than $7 million in average annual receipts for most nonmanufacturing industries.

However, there are varying definitions of a small business according with the legislation and context discussed (as you will see below). For example, just within this healthcare act there are two different definitions of small business. We’ve discussed the definition for seeing if you are required to adhere to the employer-sponsored healthcare plan mandate. Now let’s take a look at the second definition to see if you can reap a tax credit in the meantime.

Small Business Healthcare Tax Credits

Within the Patient Protection and Affordable Care Act of 2010 (aka Obamacare), there are incentives for offering employer-sponsored health care mandates. The smaller the business, the more the tax incentives. If you did not earn any income in a particular year, you can carry the small business health insurance tax credit back or forward in order to take advantage of it. Also, the credit is refundable (good for tax-exempt businesses), meaning you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.

However, the Act is much less lenient in its definition of what a small business actually is. According to Obamacare, a small business as a business that has less than 25 full-time equivalent employees making an average of about $50,000 a year or less. In order to qualify, you also must pay at least 50% of your full-time employees’ premium costs (you do not need to offer healthcare insurance coverage to part-time or to dependents).

Maximum Health Insurance Tax Credit

So how much can you get? For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. This is increased starting January 1, 2014, when the tax credit is worth up to 50% of your contribution toward employees’ premium costs (up to 35% for tax-exempt employers).

How to Claim the Small Business Health Care Tax Credit

If you think that your small business qualifies for the health care tax credit, then you need to fill out IRS Form 8941: Credit for Small Employer Health Insurance Premiums. If you are a tax-exempt organization, then you will need to fill out IRS form 990-T: Exempt Organization Business Income Tax Return.

More Health Insurance Topics





While tax season may have wrapped up for this year, there’s already some buzz about a new tax topic for next year, the Health Insurance Premium Tax Credit and health insurance subsidies which will begin on January 1, 2014.

What is the Health Insurance Tax Credit?

The new health care premium tax credits are part of the Health Care Reform Bill called the Affordable Care Act (ACA). The tax credits will be used to purchase health insurance through the new health care exchanges.

Health Insurance Tax Credit

The Health Insurance Tax Credit is:

Refundable. The health care tax credit is refundable, which means you can receive a tax refund even if the credit is more than your total tax.

Advanceable. You can receive the tax credit in advance of filing your tax return to help pay for your premiums. However, if you take an advance of the tax credit, you will have to calculate the actual tax credit when you file your tax return. If your actual health insurance tax credit is less than the amount of money that was advanced, you will have to repay the difference. However, repayments will be capped based on income.

Who is Eligible for the Health Insurance Premium Tax Credit?

Eligibility for the health care tax credit is based on the following:

  • You must purchase health insurance through the new insurance exchanges.
  • Your household income for the tax year is between 100% and 400% of the Federal Poverty Level (FPL).
  • If you are eligible for other coverage (Medicare, Medicaid or affordable employer coverage) you are not eligible for the tax credit.

Health Care Tax Credit Amounts

What is the amount of the tax credit?

The tax credit will adjust the annual premiums you pay to be a percentage of your household income. Annual premiums for those who qualify will not exceed 9.5% of household income. The contribution percent goes from 2% at the 100% of FPL to 9.5% at 400% of FPL. There is a helpful chart showing the contribution percentages at each income level on page 5 of this document from the NCSL.

What is Federal Poverty Level?

The 2013 Federal Poverty Level income ranges for 100% of FPL to 400% of FPL are:

  • 1 Person Household: $11,490 – $45,960
  • 2 Person Household: $15,510 – $62,040
  • 3 Person Household: $19,530 – $78,120
  • 4 Person Household: $23,550 – $94,200
  • 5 Person Household: $27,570 – $110,280

You can see the complete Federal Poverty Level ranges for various sized households.

What is household income?

Household income for the tax credit is defined as Modified Adjusted Gross Income. MAGI currently excludes income that is tax deferred under 401ks.

Health Insurance Tax Credit Calculator

Calculating the tax credit based on your family size, age, and income is best done with one of the health care tax credit calculators.

As soon as the tax credits are finalized, we will add the calculations to our tax calculator for next year.

The ACA Cliff

If you play around with the calculator, you’ll notice the large “cliff” at the end of the tax credit. For example, for my family of 5, to qualify for the health insurance tax credit at the 400% level, the tax credit is $2503. This is based on a premium of $13126 and an income of $111,823. If the household income goes up to $111,824 (or you earn $1 more), the tax credit drops to $0. Essentially, the extra dollar is taxed at a rate of 250300%.

If you plan to use this tax credit and your income is near the cliff, it will be very important to not only understand tax brackets, but also understand how the cliff can dramatically impact your taxes.

You can see an illustration of how the cliff works in detail on the Obamacare Cliff website.

Claiming the Premium Tax Credit

Filing a tax return. Even if you don’t normally file a tax return, because you don’t normally meet the minimum income to file taxes, this will be a case where you will need to file a tax return to claim the tax credit.

Filing Status. Your health insurance credit will depend on your filing status. If you are married, you must file jointly to claim the health care tax credit. In addition, if someone else claims you as a dependent, you will not be eligible for the health insurance subsidies.

Tax Penalties. The Individual Mandate and tax penalties for skipping health insurance will also go into effect at the same time as the ACA tax credit.

For more, see How to Claim the Health Insurance Premium Tax Credit.

Health Care Tax Credit Helpful Resources

More Health Insurance Tax Topics





What is the Child and Dependent Care Credit?

  • The Child and Dependent Care Credit is a nonrefundable tax credit available to qualifying individuals who have paid costs for child care or care for a dependent within the same year.
  • The payments must be made to a care provider. This cannot include your spouse, other children, or any of your dependents that may be providing care.
  • The total expenses that qualify for the credit are limited to $3,000 for one child or $6,000 for two of more children.

When and Where is the Child and Dependent Care Credit Used?

  • If you paid for the care of your child, you can qualify for this credit. Children qualify if they are under the age of 13-years-old.
  • If your spouse or other dependent is physically or mentally unable to take care of themselves, you may qualify for the cost of care.
  • You will need to reduce the credit by any amount of dependent care benefits that are provided by your employer.
  • You may only qualify for this credit if you are a custodial parent. Even if you are a noncustodial parent claiming an exemption for the child or children, you cannot qualify for this credit.
  • You can only qualify for this credit if you paid for care while you or your spouse was working or looking for work.

Child Dependent Care Credit

  • The expenses claimed can’t be more than your earned income unless you or your spouse are a full-time student.
  • If you’re married, you must file jointly.
  • To claim this credit, you can use Form 2441 on 1040 or 1040a.

More Tax Topics for Parents





What is the Child Tax Credit?

The Child Tax Credit is a tax credit you can claim for each child depending on your income.

You may be able to claim up to $1,000 per qualifying child under 17 years old.

This tax credit can be claimed in addition to credit for child dependent care expenses.

When and where is the Child Tax Credit used?

To qualify for the Child Tax Credit:

  • A child must have been under 17 at the end of the year.
  • The child must be a dependent on your federal tax return.
  • The child must be your child, stepchild, foster child, sibling, step-sibling, grandchild, or niece or nephew that is treated as your own child. An adopted child needs to be legally adopted.
  • The child you are claiming must not provide more than half of their own support.
  • The child must be a U.S. citizen, U.S. national, or U.S. resident alien. They must have lived with you for more than half of the year.

Child Tax Credit Income Limits

The tax credit is reduced based on your income for the year. The credit depends on your filing status and starts to reduce when your income is $55,000 for married couples filing separately, $110,000 for married couples filing jointly, and $75,000 for single, head of household and qualifying windows or widowers.

The child tax credit is reduced by $50 for each $1,000 of income above the above limitations.

Additional Child Tax Credit

You may be able to claim the Additional Child Tax Credit if the amount of your Child Tax Credit is more than the amount of the income tax you owe. For More information see the IRS publication on Child Tax Credit.

If you claim the additional child tax credit, your entire tax refund will be delayed until February 15. For more information, see IRS Will Delay Tax Refunds if You Claim These Tax Credits.

More Tax Topics for Parents





Tax credits reduce the amount of money dollar-for-dollar that a taxpayer owes. Some popular ones include the Saver’s Tax Credit, the Earned Income Credit, the American Opportunity Tax Credit, and the child tax credit.

For many taxpayers, claiming a tax credit means we get a refund from taxes we have all ready paid throughout the year. However, some households do not owe income tax for any number of reasons. They are also eligible to claim certain tax credits and get a refund. If you fall into this category, you may be wondering whether or not you can claim the tax credit and receive money from the government.

This is where it is important to know the difference between refundable and non-refundable tax credits.

Refundable vs. Non Refundable Tax Credits

Non-Refundable Tax Credits: Most tax credits are non-refundable. This means that the amount of the credit you are eligible for can take your tax liability down to zero, but cannot be used to receive a refund beyond. Common non-refundable tax credits include:

Refundable Tax Credits: A refundable tax credit means that if the credit exceeds the amount of your tax liability then you would receive the rest of the credit back as a refund. In other words, if you owed no income tax but were eligible for a refundable tax credit, you would receive a check (or direct deposit) from the IRS. Common refundable tax credits include:

If you qualify for a refundable tax credit, it’s a good idea to file your taxes even if you fall below the minimum income to file, since you will get a refund.

To see how the refundable and nonrefundable tax credits impact your tax refund, you can use the tax calculator.





Each quarter, I like to do a financial check in. It’s a good reminder to reevaluate some topics that have been on the backburner and a great time to address new topics that depend on the time of year.

With tax season complete and summer on the way, here are tips to get your finances in order this quarter; some from me, and some from readers.

Second Quarter Financial Tips

  1. Asset Allocation Rebalancing. After the stock market losses and recent rally, check to see if your asset allocation matches your target asset allocation. I had to move a chunk of money from bonds to stocks to rebalance, but I’ll be glad I did down the road.
  2. Plan for 2009 Taxes. You should be receiving your Make Working Pay Tax Credit by now. Evaluate your tax situation for the year and make sure your withholding is correct. You can use the IRS withholding calculator.
  3. Review the Economic Stimulus Plan. The economic stimulus plan had lots of different components. Make sure you’re taking advantage of any of the programs you qualify for.
  4. Evaluate Your New Year’s Resolution. How are you doing? My plan for Organization and Execution is moving along slowly, but I have gotten some of the things I wanted done out of the way.
  5. Install Energy Efficient Upgrades. Install upgrades to your windows, doors, heating systems or other appliances this year for a 30% ($1,500 maximum) energy tax credit. We used ours in back in 2006 and were pleased with the results. Check the product list for all eligible products and limits.
  6. Update Your Budget. Does it seem like summertime always blows a hole in your budget? Plan now how much you want to spend on summer vacation, landscaping and home projects, and events you need to attend like weddings and graduations. Be sure that they are all accounted for in your budget.
  7. Shop Insurance Rates. It’s a good idea to shop your insurance rates yearly to make sure you are getting a good deal. If you stick with your current company, evaluate your discounts and the programs available. I had to recently switch my car to a pleasure rate since I no longer commute to work and I saved a few bucks.
  8. Adjust Your Finances for a New Baby. If you recently had a new addition to the family, you’ll want to make financial plans for a new baby including taking advantage of the 529 sign up bonus.
  9. Discuss Summer Plans With Your Kids. Do they want to look for a summer job? If so, now’s a great time to start looking.
  10. Updated your Personal Financial Statement. Update your personal financial statement (net worth) and monitor it at least once a year, but better yet would be twice a year or quarterly. – Mark Nelson
  11. Make Plans for Homebuying. If you are going to take advantage of the $8,000 First Time Home Buyer Tax Credit later this year, get your finances in order now to prepare. You can get your Free FICO Scores and Credit Reports to get started.
  12. Refinance. If you already own a home, I’m sure you are watching rates to see how low they’ll go to find the right Time to Refinance. If your circumstances have changed, also look into the Making Home Affordable program for refinance and loan modification options.
  13. Save Money for Graduation Transition. Having just been offered a great job and with my college graduation looming ahead, my main task is to save about $11,000. Based on some rough calculations, I think I will need about that much to move to the new city (where my job is), get an apartment, car, and new wardrobe. I’m excited! – Greg
  14. Create a Jump Bag. Are you prepared for a region wide disaster? As thunderstorms and tornadoes often roll through my neck of the woods, this got pushed to the top of the list recently. The bag contains anything you think you might need if you had to get out of your house in 5 minutes or less. Flashlight, food, water, change of underwear are some of the basics. A flash drive with a password protected spreadsheet listing both spouse’s accounts and how to access them is going to be in mine! – Danielle
  15. Sign up for CSAs. CSAs offer a share of a farmer’s crop for the season. They’re healthy, the price is right, and sometimes they come with a Health Insurance reimubursement. If you don’t want to commit to a whole season, check the schedule for your local farmer’s market; ours opened last weekend.
  16. Enroll in Discounted Summer Programs. Find out what kind of programs your local schools and parks and recreation departments offer. It’s usually a cheap way for summer sporting fun and exercise. They offer programs for kids, teens, and adults. Our signups begin next week, and many of the programs fill quickly.




Tax day is here! Have you filed your tax return yet? If not, you can always file an extension. Don’t forget that the first 2009 estimated tax payment is also due today.

Lots of first time home buyers are planning to file for the 2009 $8,000 First Time Home Buyer Tax Credit on their 2008 tax returns. There are lots of questions about the tax credit, so let’s dive right in!

 

If we are purchasing a home as a married couple and one of us is a first time home buyer and the other one is not, do we qualify for the credit at all? – Will

According to IRS Form 5405, it looks like for married couples, both of you must be first time home buyers to claim the credit.

 
 

Is there a way I can qualify for the $8,000 credit if I am preapproved for a loan before December 1st, but I don’t purchase a home until summer 2010? – Steve

Unfortunately, you need to purchase your home before November 30, 2009. A preapproval by that date won’t qualify you for tax credit.

 
 

Is this credit “up to” $8,000, depending on your income? What I’ve heard is that unless your tax liabilities are greater than $8,000, you won’t be able to claim the full credit amount. – Max

The “up to” part accounts for the 10% of purchase price. If you only bought a $50,000 home, you would get $5,000. The tax credit is refundable, so you could receive more money than your tax liability.

 
 

We sold our home ten years ago, bought a mobile home, which we own, but not the land. We pay rent on the lot and pay only personal property taxes on the mobile home, just like our autos. Do we qualify for the $8,000 credit? – Harvey and many others

I’ve done a lot of research on the mobile home issue for you. Unfortunately, it looks like mobile homes are still considered a primary residence. Therefore, if you owned one in the last 3 years, you will not be able to claim the tax credit.

See “Who Can Claim the Credit” section of Form 5405. It states:

You (and your spouse if married) did not own any other main home during the 3-year period ending on the date of
purchase…. Main home. Your main home is the one you live in most of the time. It can be a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of residence.





The $15,000 home buyer tax credit that was scaled back in favor of an $8,000 First Time Home Buyer Tax Credit in the economic stimulus plan is showing signs of life again!

Last week, Republicans proposed the Responsible Homeowners Act, which revives the $15,000 home buyer tax credit.

$15000 Home Buyer Tax Credit

The proposal includes a $15,000 home buyer tax credit. Details of the tax credit include:

  • Purchases of all primary residences, not just first time home buyers.
  • Purchased before July 1, 2010.
  • 5% minimum down payment.

Tax Credit to Refinance

In addition to buyers, they propose a refinancing tax credit. It’s a $5,000 tax credit that could be used to cover closing costs, buy down points, or reduce principal. It would include refinances that take place by July 1, 2010.

Since many people are refinancing right now it will be interesting to see if they make it retroactive to include those of you who have already done it. Otherwise it might be another scenario where early birds are left out in the cold.

Tax Breaks for Investors

I was intrigued by the inclusion of tax breaks for investors, since we’re getting into real estate investing right now:

An equalizing of the treatment of a home purchased for occupancy with a home purchased for rental purposes (defined as being rented to the same tenant for at least 181 days out of the year). The same exclusion from taxes for any future appreciation in the home value applies. This covers purchases made before July 1, 2010.

The proposal also includes some incentives for lenders. Complete details on the proposal can be read at TownHall.com.

Home Owner Tax Credits

We’ve seen so many forms of the home buyer tax credit. Right now we have the $7,500 First Time Home Buyer Tax Credit (which was really a loan) for 2008 and the $8,000 tax credit for 2009.

In addition, there’s the Making Home Affordable Program for refinances and modifications.

Is anyone else having a hard time keeping up with the constantly changing programs for home buyers and home owners? It seems like it will be really hard to measure the success of any of the programs since they keep changing and adding to them.





The Make Working Pay tax credit was included as part of the American Recovery and Reinvestment Act. Beginning in the next few weeks, you’ll begin to see the money in your paycheck.

Make Working Pay Tax Credit

The credit is $400 for working individuals and $800 for married filing joint. The refundable credit is available in 2009 and 2010. (In 2011, it will be replaced by the Payroll Tax Credit). The maximum credit is 6.2% of earned income; it phases out at $75,000 for individuals and $150,000 for married couples filing jointly.

If you don’t meet the making work pay tax credit eligibility, you may have to repay the tax credit.

How To Get Your Money

The withholding on your paycheck will be lowered resulting in more take home pay. You do not need to submit a new W-4 form, your employer will automatically adjust your withholding. Employers need to begin using the updated withholding tables no later than April 1, 2009.

If you are curious, you can calculate the new amount you’ll have withheld based on the new withholding tables. Use the table that corresponds to the filing status and number of exemptions your employer has on file from your last W-4.

If you don’t make enough to pay income tax or your employer does not withhold taxes, you can claim the credit on your 2009 tax return.

For Self Employed

Self employed workers can reduce your estimated tax payments if you want to keep the money in your pocket instead of waiting to claim your tax credit when you file your return.

You can see Publication 15-T for more information from the IRS on the Make Working Pay Tax Credit.

Action Plan

Because the $400 will be spread out over 9 months, it could get easily lost in your day-to-day finances. If you are paid every other week, you will probably see about $20 extra per paycheck.

Make a plan of how you want to spend your tax credit, without just absorbing the money into your monthly cash flow. To keep track, separate the extra money each time you get paid and allocate it to your goals. Once you receive your entire $400, you’ll have something to show for it instead of wondering where it went!