Worksheet 34-1 Worksheet 34-1 Figuring Your Taxable Benefi ts
38.6 Exemption from Individual Responsibility Payment
EXAMPLE
In 2015, you are single, age 32, with no dependents, and you did not have coverage for January through May. You began a job on June 1 from which you had minimum essential coverage for the balance of the year. Assume that your household income for the year is $35,000. Your penalty for 2015 is $206. Under Alternative 1, the penalty is $494 ($35,000 – $10,300 fi ling threshold for single person x 2%). That is more than the amount under Alternative 2, which is $325. Therefore, the penalty for fi ve months is 5/12ths of Alternative 1, or $206 ([$494 ÷ 12] x 5).
Minimum essential coverage. Th e shared responsibility provision of the Aff ordable Care Act requires you to have minimum essential coverage for yourself, your spouse and your dependents unless you or they have an exemption (38.6) from the requirement. Minimum essential coverage is a medical plan that provides health insurance coverage as required by the Aff ordable Care Act.
Th e plan may be:
• Individual coverage purchased through a government exchange (the federal or your state’s marketplace) or directly from an insurance company
• An employer plan (including COBRA)
• A government plan (e.g., Medicare, Medicaid, the Children’s Health Insurance Program, TRICARE, veterans health care programs)
• Peace Corps volunteer programs
• Self-funded health coverage of universities for their students (but only through 2014 unless this rule is extended for 2015)
You can be covered under a diff erent health plan than your spouse and dependent children, so long as you each have minimum essential coverage (or have an exemption).
Not all types of coverage are treated as minimum essential coverage. For example, dental and vision coverage, worker’s compensation, and coverage for a specifi c disease or condition, such as cancer, do not qualify as minimum essential coverage.
Household income. Household income is a new term in the tax law. Th e starting point is your adjusted gross income, plus the adjusted gross income of your dependents for whom you may claim a personal exemption if they are required to fi le a tax return, increased by any excludable foreign earned income and tax-exempt interest for you and your dependents.
Report the penalty tax on Form 1040 or Form 1040A. If you have full-year coverage and thus do not owe the shared responsibility payment, check the box on line 61 of Form 1040, Line 38 of Form 1040A, or Line 11 of Form 1040EZ. Otherwise, enter the penalty tax on Line 61, Line 38, or Line 11, as applicable. You should receive a Form 1095-B or Form 1095-C that reports the months of coverage for each covered individual if you have minimum essential coverage from an employer or government plan, or a policy purchased on the individual market (but not through a government exchange, which will send you a Form 1095-A).
38.6 Exemption from Individual Responsibility Payment
Even if you do not have minimum essential health coverage, you do not owe a penalty tax if you qualify for a coverage exemption and fi le Form 8965 (Health Coverage Exemptions) with your tax return. Exemptions available for 2015 include:
• You lack minimum essential coverage for less than three months in 2015
• Th e lowest-priced coverage available to you through an exchange costs more than 8.05%
of your household income (household income is defi ned in 38.5)
• Your household income or your gross income is below your tax fi ling threshold (page 3)
• You are a member of a federally recognized Native American tribe or are eligible for services through an Indian Health Services provider
• You are a member of a recognized health care sharing ministry
• You are a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare
• You are incarcerated
• You are not lawfully in the U.S.
• You claim hardship Filing Tip
Proof of Coverage
You should receive Form 1095-B or 1095-C from your employer showing the amount of coverage for 2015. Th is gives you proof of your coverage for the year.
Exemption from Individual Responsibility Payment • 38.6 Hardship. Th ere are currently more than a dozen recognized hardship situations that entitle you
to be exempt from the individual mandate and avoid the penalty tax. More situations may be added to this list; see the e-Supplement at jklasser.com.
• You are homeless
• You were evicted in the past six months or are facing eviction or foreclosure
• You receives a shut-off notice from a utility company
• You recently experienced domestic violence
• You recently experienced the death of a close family member
• You experienced a fi re, fl ood, or other disaster that caused substantial damage to your property
• You fi led for bankruptcy within the last 6 months
• You had medical expenses you couldn’t pay in the last 24 months which resulted in substantial debt
• You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member
• Your child, who is your dependent, has been denied coverage in Medicaid and CHIP, and another person is required by court order to give medical support to the child; you are exempt from the penalty for this child
• You become eligible for enrollment in a qualifi ed health plan (QHP) through an exchange as a result of an eligibility appeals decision (this enrollment now entitles you to lower month premiums or cost-sharing reductions)
• You are ineligible for Medicaid because your state did not expand its eligibility rules under the Aff ordable Care Act
• Your health care policy was cancelled and you believe other plans off ered through the exchange are unaff ordable
• You experienced another hardship in obtaining health coverage (something you’ll need to explain).
Some of the exemptions are available only through the exchange, some only from the IRS, and some from either. If you are claiming any of these exemptions, you must fi le Form 8965, Health Coverage Exemptions, with your return. If you obtained an exemption from an exchange (Mar- ketplace) when applying for coverage, complete Part I of Form 8965 and enter the Exemption Certifi cate Number (ECN) received from the Marketplace (or indicate that the Marketplace was still processing your request when you fi led your return). If you are claiming an exemption when you fi le your return, complete Part II or Part III of Form 8965. Instructions for Form 8965 list a code for each exemption option.
Chapter 39
Gift and Estate Tax Planning Basics
Gift planning can be an important part of estate planning. Th is chapter provides an overview of the federal gift tax and estate tax. Developing an estate plan for your as- sets requires professional assistance, but the basic guidelines in this chapter can help you begin to estimate your potential estate and start thinking about property transfers that may reduce or avoid the estate tax.
Relatively small gifts can completely avoid gift tax (39.2) because of the annual gift tax exclusion, which for 2015 is $14,000 per donee. Gifts to a spouse and certain gifts to pay educational or medical expenses also are not subject to the gift tax.
Gift tax (39.4) generally does not have to be paid even on very substantial taxable gifts because the tax is off set by a tax credit that for 2015 eff ectively exempts up to $5,430,000 of taxable gifts from the tax.
The credit for gift and estate taxes is unified, so the same exemption of
$5,430,000 applies to the estates of those dying in 2015, to the extent that the exemption was not used to off set lifetime taxable gifts. An unlimited estate tax marital deduction is allowed for transfers to a citizen spouse. Th e estate of a married individual can make a portability election that allows any portion of the decedent’s unused exemption amount to pass to the surviving spouse.
39.1 Gifts of Appreciated Property 641
39.2 Gift Tax Basics 641
39.3 Filing a Gift Tax Return 642
39.4 Gift Tax Credit 642
39.5 Custodial Accounts for Minors 642
39.6 Trusts in Family Planning 643
39.7 What is the Estate Tax? 644
39.8 Take Inventory and Estimate the Value of Your Potential Estate 644
39.9 Estate Tax for 2015 645
39.10 Planning for a Potential Estate Tax 646
Gift Tax Basics • 39.2