From the IRS: Review Your Taxes This Summer to Prevent a Surprise Next Spring

Review Your Taxes This Summer to Prevent a Surprise Next Spring

Each year, many people get a larger refund than they expected. Some find they owe a lot more tax than they thought they would. If this happened to you, review your situation to prevent another tax surprise. Did you marry? Have a child? Have a change in income? Some life events can have a major effect on your taxes. You can bring the tax you pay closer to the amount you owe. Here are some key IRS tips to help you come up with a plan of action:

• New Job. When you start a new job, you must fill out a Form W-4, Employee’s Withholding Allowance Certificate and give it to your employer. Your employer will use the form to figure the amount of federal income tax to withhold from your pay. Use the IRS Withholding Calculator on IRS.gov to help you fill out the form. This tool is easy to use and it’s available 24/7.

• Estimated Tax. If you earn income that is not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, dividends or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax. You normally pay it four times a year. Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to figure the tax.

• Life Events. Check to see if you need to change your Form W-4 or change the amount of estimated tax you pay when certain life events take place. A change in your marital status, the birth of a child or buying a new home can change the amount of taxes you owe. In most cases, you can submit a new Form W–4 to your employer anytime.

• Changes in Circumstances. If you are receiving advance payments of the premium tax credit, it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. You should also notify the Marketplace when you move out of the area covered by your current Marketplace plan. Advance payments of the premium tax credit help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

For more see Publication 505, Tax Withholding and Estimated Tax. You can get it on IRS.gov/forms at any time.
Additional IRS Resources:

• Publication 5152: Report changes to the Marketplace as they happen – English | Spanish
• IRS Withholding Calculator

IRS YouTube Videos:
• IRS Withholding Calculator – English | Spanish | ASL
• Premium Tax Credit: Changes in Circumstances – English | Spanish | ASL

IRS Podcasts:
• IRS Withholding Calculator – English | Spanish
• Premium Tax Credit Changes in Circumstances – English | Spanish

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2015 Medicare Trustees Report

On July 22 the 2015 Medicare Trustees report was released. As in previous years, the report separated out the financial projections for the hospital insurance (HI) program (Medicare Part A) and the Supplementary Medical Insurance (SMI) program (Medicare Part B and Prescription Drug Coverage). Financing for the two programs is very different and affects people in different ways.

As you know, Part A is free to people who qualify for Social Security benefits. The HI fund is financed by Medicare taxes—the 1.45% that comes out of employees’ paychecks, the matching 1.45% that employers pay, and the additional .9% paid on wages over $250,000 for couples or $200,000 for single individuals. These payroll taxes go into the HI trust fund, out of which are paid Medicare Part A expenses. According to the latest trustees report, the HI fund is expected to exhaust in 2030, the same date projected by trustees last year. After the HI fund is exhausted, tax revenues are projected to cover 86 percent of costs in 2030, decreasing to 79 percent in 2039 and then increasing to about 84 percent by the end of the projection period. The Trustees recommend that Congress and the President work together “with a sense of urgency” to address the depletion of the HI trust fund.

Parts B and D are financed in part by monthly premiums paid by Medicare beneficiaries and in part by general revenues of the U.S. Treasury. Premiums cover about 25% and general revenues cover about 75% of the costs. Theoretically, these costs will always be covered because the revenue sources (premiums and income taxes) can always be raised. And this is where high-income people will be hit the hardest. As Part B and Part D costs rise, the income-related monthly adjustment will increase. To make matters worse, individuals with MAGI over $85,000 and couples with MAGI over $170,000 are not subject to the hold-harmless provision that could kick in this year.

Under the hold-harmless provision, Social Security checks cannot go down if the Part B premium rises by more than the Social Security cost-of-living adjustment. It affects people whose Medicare premiums are deducted from their Social Security checks and who are not subject to the IRMAA. If the Social Security COLA is 0% in 2016, which is likely, the monthly Part B premium will remain at $104.90 for 70% of beneficiaries. Then it will fall to higher-income beneficiaries to make up the difference.

According to Table V.E2 on page 203 of the report, the Trustees project the Part B base premium to rise to $159.30 in 2016, from $104.90 in 2015. But if there is no Social Security COLA, 70% of beneficiaries would continue to pay $104.90. This would cause the IRMAA to rise as follows:

MAGI Single MAGI Joint 2016 (projected) 2015

Under $85,000 Under $170,000 $159.30* $104.90

$85,001-$107,000 $170,001-$214,000 $223.00 $146.90

$107,001-$160,000 $214,001-$320,000 $318.60 $209.80

$160,001-$214,000 $320,001-$428,000 $414.20 $272.20

Over $214,000 over $428,000 $509.80 $335.70

Source: Table V.E3. on page 204 of the report.

* If not subject to the hold-harmless provision. People not subject to the hold-harmless provision might include those whose Medicare premiums are not deducted from their Social Security checks or who enroll in Part B after 2015.

Actual premiums will be announced sometime in October. But it can’t hurt to start preparing your clients for substantially higher Medicare premiums in 2016 so they can incorporate them into their retirement spending plans. At some point the longer-term threat of substantially higher income taxes to restore solvency to the HI fund will also need to be taken into account.

From the IRS: Tax Tips for Starting a Business

Tax Tips for Starting a Business

When you start a business, a key to your success is to know your tax obligations. You may not only need to know about income tax rules, but also about payroll tax rules. Here are five IRS tax tips that can help you get your business off to a good start.

1. Business Structure. An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you will file.

2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account.

3. Employer Identification Number. You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can
apply for it online.

4. Accounting Method. An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.

5. Employee Health Care. The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.
The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees). These employers’ are called applicable large employers. ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS. The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.

Employers also have information reporting responsibilities regarding minimum essential coverage they offer or provide to their fulltime employees. Employers must send reports to employees and to the IRS on new forms the IRS created for this purpose.

Get all the tax basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center.

Additional IRS Resources:
• IRS Tax Calendar for Businesses and Self-Employed
• Publication 505, Tax Withholding and Estimated Tax
• Publication 334, Tax Guide for Small Business
• Publication 225, Farmers Tax guide
• Publication 535, Business Expenses
• Publication 587, Business Use of Your Home
• Publication 510, Excise Taxes
• Publication 538, Accounting Periods and Methods

IRS YouTube Videos:
• Small Business Health Care Tax Credit – English | Spanish | ASL
• IRS Online Tax Calendar – English | Spanish | ASL
• Simplified Home Office Deduction – English | Spanish | ASL

IRS Podcasts:
• Small Business Health Care Tax Credit – English | Spanish
• IRS Online Tax Calendar – English | Spanish
• Simplified Home Office Deduction – English | Spanish

From the IRS: How does ACA affect Employers with fewer than 50 employees?

Find out how ACA affects Employers with fewer than 50 Employees

Most employers have fewer than 50 full-time employees or full-time equivalent employees and are therefore not subject to the Affordable Care Act’s employer shared responsibility provision.

If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year. Therefore, the employer is not subject to the employer shared responsibility provisions or the employer information reporting provisions for the current year. Employers with 50 or fewer employees can purchase health insurance coverage for its employees through the Small Business Health Options Program – better known as the SHOP Marketplace.

Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates throughout the year. To determine its workforce size for a year an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year, and divides that total number by 12.

Employers that have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 may be eligible for the small business health care tax credit if they cover at least 50 percent of their full-time employees’ premium costs and generally, after 2013, if they purchase coverage through the SHOP.

All employers, regardless of size, that provide self-insured health coverage must file an annual information return reporting certain information for individuals they cover. The first returns are due to be filed in 2016 for coverage provided during 2015.

For more information, visit our Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca. 

From the IRS: Find out how ACA affects Employers with 50 or more Employees

Find out how ACA affects Employers with 50 or more Employees

Some of the provisions of the Affordable Care Act, or health care law, apply only to large employers, which are generally those with 50 or more full-time equivalent employees. These employers are considered applicable large employers – also known as ALEs – and are subject to the employer shared responsibility provisions and the annual employer information return provisions. For example, in 2016 applicable large employers will have annual reporting responsibilities concerning whether and what health insurance they offered in 2015 to their full-time employees.

All employers, regardless of size, that provide self-insured health coverage must file an annual return reporting certain information for individuals they cover. The first returns are due to be filed in 2016 for the year 2015.

Effective for calendar year 2015, ALEs with 100 or more full-time or full-time equivalent employees will be subject to the employer shared responsibility provision and therefore may have to make a shared responsibility payment. This applies to employers that do not offer adequate, affordable coverage to their full-time employees and one or more of those employees get a premium tax credit. The employer shared responsibility provisions will be phased in for smaller ALEs from 2015 to 2016.

Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates throughout the year. To determine its workforce size for a year an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divides that total number by 12.

Employers with more than 50 cannot purchase health insurance coverage for its employees through the Small Business Health Options Program – better known as the SHOP Marketplace. However, Employers that have exactly 50 employees can purchase coverage for their employees through the SHOP.

For more information, visit our Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca.

From the IRS: IRS.gov: Simply the Best Place to Get Tax Help

IRS.gov: Simply the Best Place to Get Tax Help
If you need help with your taxes, the IRS website is the place for you. There is no waiting for service and it has tax tools that are easy to use. You can even prepare and e-file your tax return for free with IRS Free File. If you have questions, you can get the answers you need, when you need them. Here are the best reasons to make IRS.gov your one stop shop for tax help from the IRS.

• Use IRS Free File. You can prepare and e-file your federal taxes for free with IRS Free File. Free File does the hard work for you. If you made $60,000 or less, you can use free name-brand tax software. If you earned more, you can use Free File Fillable Forms, the electronic version of IRS paper forms. Either way, you have a free e-file option, and the only way you can access it is on IRS.gov.

• Options to File Electronically. You should file electronically whether you qualify for free volunteer help, do your own taxes or hire a tax preparer. IRS e-file is the easiest, safest and most popular way to file a complete and accurate tax return. The fastest way to get your refund is to combine e-file with direct deposit. You get your refund in less than 21 days in most cases. If you owe taxes, e-file has easy pay options so you can file early and pay by the April 15 deadline.

• Help at Any Time. IRS.gov is always available. Use the “Filing” link from our home page for all your federal tax needs. Just about everything you need is right at the tip of your fingers. The Interactive Tax Assistant tool and the IRS Tax Map can answer with many of your tax law questions. You can view, download or print tax products right away. Many IRS tools and products are also available in Spanish.

• Find a Tax Preparer. The IRS has a new tool that you can use to help you find a tax return preparer. The Directory of Tax Return Preparers tool will search and sort for a list of tax preparers in your area with the credentials and qualifications that you prefer.

• Check Your Refund. You can track your refund using the ‘Where’s My Refund?’ tool. It’s quick, easy and secure. You can check the status of your return within 24 hours after the IRS has received your e-filed return. If you file a paper return, you can check your refund status four weeks after you mail it. Once IRS approves your refund, the tool will give you a date to expect it. The IRS updates refund status for the tool no more than once a day.

• Pay Tax Online. Electronic payments are a convenient and safe way to pay taxes. The IRS Direct Pay tool is the fastest and easiest way to pay the tax you owe. Visit IRS.gov/directpay to use this free and secure way to pay directly from your checking or savings account. If you can’t pay all your taxes in full, use the Online Payment Agreement to apply for an installment agreement.

• Use the EITC Assistant. The Earned Income Tax Credit may apply to you if you worked and earned less than $52,427 in 2014. The credit can be worth up to $6,143. Use the EITC Assistant tool to find out if you’re eligible. You may be among the millions of workers who get the EITC this year. And you can use Free File to claim the EITC.

• Figure Your Withholding. The IRS Withholding Calculator tool can help you avoid having too much or too little income tax withheld from your pay. You can use it anytime throughout the year to stay on target.

• Get Health Care Tax Information. You can get all the details about the Affordable Care Act tax provisions on IRS.gov/aca. Visit this site to find out how the health care law affects your taxes, including:

o Reporting health insurance coverage.

o Claiming an exemption from the coverage requirement.

o Making an individual shared responsibility payment.

o Claiming the premium tax credit.

o Reconciling advance payments of the premium tax credit.

The official IRS website is IRS.gov. Don’t be fooled by other sites that claim to be the IRS, but end in .com, .net, or .org. Some scams use phony websites to get your personal and financial information. Thieves also use the information to commit identity theft or steal your money. Visit only IRS.gov for tax help from the IRS.

If you found this Tax Tip helpful, please share it through your social media platforms. A great way to get tax information is to use IRS Social Media. You can also subscribe to IRS Tax Tips or any of our e-news subscriptions.

IRS YouTube Videos:
• Welcome to Free File – English
• Interactive Tax Assistant – English | ASL
• When Will I Get My Refund? – English | Spanish | ASL
• Help for Taxpayers – English | ASL
• IRS Tax Payment Options – English | Spanish | ASL
• Online Payment Agreement – English | Spanish | ASL
• IRS Withholding Calculator – English | Spanish | ASL

IRS Podcasts:
• Interactive Tax Assistant – English
• When Will I Get My Refund? – English | Spanish
• Help for Taxpayers – English
• IRS Tax Payment Options – English | Spanish
• Online Payment Agreement – English | Spanish
• IRS Withholding Calculator – English | Spanish

From the IRS: New IRS Publication helps you understand the Health Care Law

New IRS Publication helps you understand the Health Care Law

There is a new publication that will help you learn about how the Affordable Care Act affects your taxes. IRS Publication 5187, Health Care Law: What’s New for Individuals and Families is now available on IRS.gov/aca. While the health care law has several parts, this publication breaks down what’s new for the 2014 federal tax return you will be filing in 2015.

This new publication provides important information for taxpayers who:

Had health insurance coverage for the entire year
Did not have health coverage for each month of the year
Purchased health insurance from the Marketplace
Might be eligible for an exemption from the coverage requirement
Had advance payments of the premium tax credit sent to their insurance provider
Is claiming the premium tax credit on their tax return
The publication includes a glossary that will help you understand new terms related to ACA. It also addresses the new lines for reporting ACA information on Forms 1040, 1040-A and 1040-EZ.

Most people have qualifying health coverage, and all they will need to do is simply check a box on their tax return.

You can access Publication 5187 at IRS.gov/aca, along with other important information related to the health care law. You can also find it by typing “p5187” into the search window at the top of any IRS.gov page or “5187” in the Forms and Pubs search window on IRS.gov.