News updates January, 2014

Federal court upholds tax credits for purchasers on federal health exchanges

Rejecting a challenge to one of the key provisions in the Patient Protection and Affordable Care Act, the U.S. District Court for the District of Columbia upheld a Treasury regulation that allows taxpayers who purchase health insurance on one of the 34 federal health care exchanges to claim the Sec. 36B premium tax credit. The plaintiffs had argued that the phrase “an Exchange established by the State” in the statute precluded purchasers on federal exchanges from receiving the credit.

7 unexpected tax changes for 2014

Affordable Care Act Requirement

 While many Obamacare tax provisions were rolled out in the past few years, there’s a major ACA-related change coming into play for 2014. It’s a penalty for people who don’t purchase health insurance. As John Roth, a senior tax analyst with CCH group told the Chicago Tribune in 2012, soon after the law was upheld by the U.S. Supreme Court, “the government can’t force you to buy insurance, but it can tax you for not buying it.” Single persons who don’t purchase health insurance will now have to pay a tax equal to one percent of their income, or $95 – whichever amount is greater.

Optional Deduction for State Sales Taxes

As of January 1, individuals can no longer deduct their itemized state and local sales taxes. Dr. Lassar notes that in 2013, a taxpayer had the option to deduct either their state income tax or the amount equal to their state’s sales tax as an itemized deduction. Taxpayers in states with high income taxes — such as New York, Connecticut and many of the New England states — could deduct their income taxes. And people living in the seven states with no income tax — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — would deduct their sales tax. But “that sales tax deduction is going away,” she says.

Mass Transit vs. Car Commuters

Another victim of Congressional neglect is the exclusion of expenses for taking mass transit from taxable income. Thanks to that tax break expiring, commuters using mass transit can only exclude $130 per month, compared to the previous $245. “It used to be … the transportation benefit was small because you had a small cost to your bus pass,” says Dr. Lassar. “And as bus passes increased (as transportation costs, like fuel, rose), this transportation fringe benefit kept increasing.”

On the other hand, if your employer allowed you to exclude payments on your company parking, that benefit has gone up $5 this year, to $250. “This is the biggest disparity between the two components of the commuter benefit that we have ever seen,” Natasha Rankin, executive director of the Employers Council on Flexible Compensation, lamented to The Washington Post.

Home Mortgage Debt Forgiveness

Before the passage of the Mortgage Relief Act of 2007, any debt discharged was treated as taxable income. The act allowed taxpayers to exclude any such relief of mortgage debt through foreclosure, as well as any debt reduced by mortgage restructuring, for as much as $2 million. That provision expired December 31, which means any cancellation of debt income is now taxable. This tax break was designed to help people with underwater mortgages, as it allowed them to not pay taxes on any debt they had been forgiven. But again, this measure has expired.

Education Deductions

A deduction of up to $4,000 towards higher education expenses expired with the new year, as did a deduction of up to $250 for teachers who made out-of-pocket purchases towards school supplies.These provisions have reportedly been allowed to expire in the past, and were then retroactively reinstated. But for now, Congress can’t come to an agreement on how to pay for these very popular measures.

IRA Distributions to Charity

Before 2014, older individuals who wanted to direct up to $100,000 of their IRA distributions to their favorite charities could do so tax-free. As the Associated Press notes, this tax break worked well for people in upper middle class income brackets, rather “than taking a distribution from your IRA and then donating the cast to a charity and claiming an itemized deduction.” One impact of this change is that some charitable giving by Americans could decline.

Residential Energy Credits

You can no longer get a $500 tax credit for making home improvements to save energy at your primary place of residence – nor can contractors get a $2,000 credit per energy-efficient home they build for a customer. “These were all provisions that were supposed to have gone away long ago,” says Dr. Lassar. “Congress just kept extending them year after year … and when Congress didn’t act on them (in 2013), they went away.”


On January 17th, 2014, posted in: Updates by

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