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Deadline looms for medical insurance requirement

By James Paul Sabo

Two key pieces of President Obama's health reform legislation, the Patient Protection and Affordable Care Act of 2010, were to take effect on January 1, 2014, namely the requirement for entities with more than 50 full-time employees are required to provide affordable healthcare insurance to their employees or face a stiff fine and individuals must also buy health insurance or a pay a penalty tax on their 2014 US Federal individual income tax return. Recently, the requirement for entities with more than 50 full-time employees to provide affordable healthcare insurance to their employees was delayed until January 1, 2015 but the requirement for individuals to have medical insurance by January 1, 2014 or pay a penalty was not deferred.

Individual Medical Insurance

The penalty tax for being uninsured is $95 per adult and $47.50 per family member under the age of 18 to a maximum penalty in 2014 of $285 per family (equivalent to a husband, wife and two children under the age of 18). Penalties will be significantly higher in 2015 and 2016. With the unavailability of employer provided insurance until 2015 individuals will be forced to buy coverage from a pool of commercial and private insurance carriers in each state.

How will the Internal Revenue Service (IRS) enforce the penalty? With great difficulty. The legislation requires employers to send the IRS a report detailing employee coverage so that the IRS can determine who is uninsured. With the employer report now being deferred until 2015 the IRS will not know who is insured and who is not in 2014. The IRS is further handcuffed in that it is barred from filing a lien on an individual's assets, nor charge interest on the unpaid balance. It can only garnish a refund to offset the penalty tax due.

Medicare

When you reach the age of 65 you are eligible to sign up for Medicare Part B which covers outpatient services. With many Americans now continuing working past the age of 65 they usually choose remain covered under their employer's health plan. And some employer plans allow you to continue coverage upon retirement. If you do so you may be risking non-payment of your claims even though you have medical insurance. Why? If you did not sign up for Medicare at age 65, once you retire Medicare gives you eight months to enrol. If you do not do so within this period you have to wait for the annual enrolment window, January 1 to March 31 with coverage starting on July 1. What's the problem? The problem you have is that once you retire your employer's health plan views Medicare as the primary provider and themselves as the secondary provider. So if you did not sign up for Medicare your claims to your employer's health plan will likely be rejected.

Wrongful Termination and Discrimination Settlements

In a private letter ruling the IRS stated that a settlement of a lawsuit for discrimination or wrongful termination are considered wages to the ex-employee as the payment was to settle a wage based claim and in cases where the employer also agreed to pay the plaintiff's legal expenses such payment was also considered wages to the ex-employee subject to withholding and tax.

Inheritance of An Individual Retirement Account (IRA)

You are 25 years old and your favourite uncle just died and bequeathed you his traditional IRA and his Roth IRA, each with a fair market value of $500,000. You remember that your own financial advisor told you that you do not have to take a required minimum distribution from your IRA until you reach the age of 70-and-a-half and that there is no requirement to ever take a required minimum distribution from your Roth IRA and you sit back dreaming of 45 years of tax deferred growth in your uncle's, now yours, IRA.

What your financial advisor did not tell you is that those rules do not apply to an inherited IRA from someone other than your spouse. If you fail to take a required minimum distribution from both accounts in the year after your uncle died you will be subject to a 50 percent penalty on the amount that should have been withdrawn from both IRA's even though the distribution from the Roth IRA would have been tax free.

Other tax issues that could cause the 50 percent penalty to be incurred include titling the account improperly, not dividing the IRA among multiple heirs and ignoring non-person beneficiaries. If you inherit an IRA get competent tax advice immediately.

Hiding Your Money Outside the US

For United States citizens who decided to cheat on their taxes by hiding their money in Switzerland, primarily because of the ostensible secrecy regarding Swiss accounts, getting caught is an increasing possibility. With numerous Swiss banks already under investigation for criminal fraud the Justice Department and the Swiss Government have entered into an agreement that allows Swiss banks to come forward, voluntarily identify all accounts held in their bank, past and present, by US citizens, pay substantial fines and help the US follow the money trail to other Swiss banks or to banks in other countries. In exchange for this voluntary disclosure the Justice Department will agree not to criminally prosecute the Swiss bank and its employees.

October 15 Filing Deadline

2012 US Federal individual income tax returns must be filed on or before October 15, 2013. No further extension of time to file is available. We have found that the list of procrastinators grows longer each year. It becomes especially difficult when dealing with expatriates who travel extensively who realise at the last second that they are nowhere near ready and also discover the need to go on a three-week business trip. What to do? Our suggestion to clients is to file the return on time, as is, overpay the tax due and then file an amended tax return before year end and apply the refund against their 2013 4th quarter estimated tax payment.

Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the President of ETS Ltd, PO Box HM 1574, Hamilton HM GX, Bermuda. Questions should be sent to: jsabo@expatriatetaxservices.com

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Published October 01, 2013 at 9:00 am (Updated September 30, 2013 at 7:11 pm)

Deadline looms for medical insurance requirement

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