It’s January, which means it’s time to start preparing your income tax return for 2013.
Looking at the bright side, you’ll have at least one more tax return in which to enjoy credits for your higher education expenses, home efficiency improvements, and charitable donations from your IRA. These, as well as a number of other tax breaks, expired in 2013 — and may or may not be renewed for 2014.
What’s certain is there are a few major tax changes in 2014 that could really alter the results of your return. Here are the most significant changes, and what you need to know about them.
The Obamacare Penalty
As warned when the legislation passed last year, there will be a new penalty for non-exempt individuals who don’t meet the minimum requirements for health insurance coverage under the Affordable Care Act (Obamacare).
Other than those who qualify as exempt (either low income, Native Americans, or certain religious affiliations), anyone not covered by an approved plan will face a penalty. Because of unexpected results from the new healthcare bill, those who have lost their current insurance plan due to the changes will be exempt from the penalty for at least part of 2014.
The exact amount of the penalty will depend on your income. For 2014, the amount will be $95, or 1% of your taxable income exceeding the tax threshold (whichever is higher). Basically, the penalty is designed to not cost you more than it would to purchase a healthcare plan. There will be steep hikes in the penalty in the following years, reaching $695 or 2.5% by 2016. It’s currently estimated that 4 million Americans will be penalized by the time the law is fully phased out in 2016.
So, if you’re not insured and don’t want to face this new tax penalty, you’ll want to take a look at your private or government-sponsored options as soon as possible.
The Obamacare Credit
In addition to the new penalty for those who don’t meet minimum healthcare requirements, there are new tax breaks for people who enroll in the healthcare exchanges for 2014. This is an incentive for those who may still have difficulty paying for insurance under Obamacare.
If your income is within the qualifying range of the poverty level, and you can’t receive affordable healthcare through your employer, you’ll be eligible for a credit. This can either be paid directly to your insurance, lowering your monthly premiums, or be received as a lump sum applied to your 2014 tax return. The exact amount of the credit will vary depending on your household income and specific situation.
The FSA Roll-Over Allowance
There’s also a new tax break for those who are employer-insured. If your employer provides an FSA (Flex Spending Account) option as part of their healthcare package, you’re probably familiar with the “use it or lose it” policy. Previously, the law mandated that whatever funds were placed in flex spending, but not used for eligible healthcare within the same calendar year, would be forfeited.
Now participants will be allowed to either roll over up to $500 to the following year, or have until March 15th to use any remaining funds from the previous year. This encourages heavier use of FSAs as a supplement to traditional coverage.
Even though you’re looking back on 2013 as you prepare your income tax return, don’t forget that this month begins a new year of tax laws.
What you choose to do about these new healthcare tax changes will affect the results of your 2014 return, beginning with your enrollment status. Don’t neglect to make the necessary decisions now, so you won’t be faced with penalties or a lesser refund next January.
Which of these tax changes is affecting you the most?