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Archive for November, 2013

26
Nov

Grandfathered Plans: Can You Keep Your Current Insurance Plan?

 
Insurance cancellations and the president’s response

Over the past several months, many people have received cancellation notices from their health insurance carriers, often accompanied by the explanation that their current insurance plan doesn’t meet the minimum requirements of the Affordable Care Act (ACA) scheduled to take effect January 1, 2014. In many instances, insurers are offering to replace the cancelled insurance plan with more expensive coverage that presumably offers more benefits.

The president, in response to growing numbers of consumers whose policies have been cancelled, announced that insurers could (though they need not) elect to allow consumers to keep noncompliant policies through 2014. On November 14, 2013, in a letter to state insurance commissioners, the Centers for Medicare & Medicaid Services (CMS) outlined the conditions insurers must meet in order to continue offering noncompliant policies. The letter is available on the CMS website, www.cms.gov.


Grandfathered health insurance plans

The ACA includes provisions that allow consumers to keep their current health insurance. The ACA provides that policies in place on March 23, 2010 (the date of enactment of the ACA) that have not been materially changed, and that meet certain minimum coverage and other requirements of the ACA, may be “grandfathered” even though they do not meet all of the ACA’s requirements for health plans. But it is important to note that the ACA does not require that insurers continue to offer grandfathered plans; insurance companies can stop offering these plans at their discretion.

According to the government health-care site, www.healthcare.gov, there are two types of grandfathered plans: job-based grandfathered plans, which allow for enrollment after March 23, 2010, and individual grandfathered plans, which can’t have new enrollees after March 23, 2010 (insurers can continue to offer grandfathered plans to individuals who were enrolled on March 23, 2010).

A grandfathered plan can lose its status if it makes significant changes, such as significantly reducing benefits, decreasing the annual dollar limit of coverage, or increasing out-of-pocket spending above what it was on March 23, 2010.


So can I keep my current insurance plan?

The provisions of the ACA allowing for grandfathered plans provide the basis for the premise that consumers can keep their current health insurance if they like it. Yet, as we have seen, insurers can choose to cancel noncompliant plans even if they are grandfathered. So if you like your current insurance plan, but it doesn’t meet all of the requirements of the ACA, the bottom line is this:

  • If your plan is grandfathered, you can keep it–unless your insurer decides to cancel it, which it can do
  • If your plan isn’t grandfathered, you still may be able to keep it, at least through 2014–unless your insurer chooses to cancel it
 

The foregoing is provided for information purposes only. It is not intended or designed to provide legal, accounting, tax, investment or other professional advice. Such advice requires consideration of individual circumstances. Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained. JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

 

 

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22
Nov

Tax and Planning Impact of Supreme Court’s Ruling in the Defense of Marriage Act (DOMA) Same-Sex Marriage Rights Case

Background

On June 26, 2013, the U.S. Supreme Court ruled on a landmark case related to same-sex marriage (SSM) (United States v. Windsor).  The 5-4 decision changes the application of federal tax rules for married same-sex couples.  Generally, the ruling should enable same-sex married couples to obtain the same treatment under federal rules as has been available to heterosexual married couples.  Federal agencies are working on issuing guidance on the effect of the Windsor decision, including whether federal rules treat a couple as married based on the state of celebration (where the marriage was performed) or state of domicile (where the couple lives).  In late August, the IRS released guidance stating that for federal tax purposes, a marriage is recognized if validly entered into in a domestic or foreign jurisdiction that has the legal authority to sanction marriages.  Thus, for federal tax purposes, the IRS is following the state of celebration rule to determine if a couple is marriedThe Departments of Labor, Defense and Homeland Security have also adopted a state of celebration ruleHowever, it is important to realize that the Social Security Administration, by law, currently uses a state of domicile rule.

 Same-sex couples who have not been legally married are unaffected by this ruling until their marital status is legally changed according to domestic or foreign country law.

This discussion will provide:

  • An overview of the Supreme Court’s decision and what it may mean for you;
  • Considerations with respect to estate, retirement, income tax, and health and welfare benefits plans; and
  • Actions to consider with respect to long-term planning and tax return preparation.

Tax Implications

Federal tax treatment now available to legally married same-sex couples includes:

  • Joint filing of federal income tax returns
  • Amending of prior tax returns
  • Pre-tax basis of employer-provided health-care benefits
  • Deductible and includable alimony
  • Income tax-free transfers between spouses
  • Lifetime gift tax-free property transfers to spouses
  • Estate tax relief for surviving spouses
  • Spousal IRA contributions, rollovers, required minimum distributions

 Filing of Tax Returns

Guidance from the IRS issued in August 2013 provides that any original return, amended return, claim for refund or credit, filed on or after September 16, 2013 by a same-sex married taxpayer must use a married filing status.  So the married filing joint or married filing separately status, must be used for 2013 returns and beyond. 

Amending of Tax Returns

Consideration should be given to amending federal income tax returns and gift and estate tax returns (for years that are still open under the tax law’s statute of limitations) to change marital and filing status and other information that will alter the tax calculations and potentially result in a lower tax liability.  State tax implications also should be reviewed.  Returns may be amended to correct filing status, dependents, income, deductions, or tax credits.  Couples may want to estimate the income tax liability that would have been due in previous years if the couple had been able file a joint return.  Even basic items are impacted, such as standard deductions, child-related tax credits, and phase-outs of certain benefits, such as the education expense deduction.  Another example of a tax change is where one spouse could have had capital losses on investments in prior years that the other spouse’s gains would offset if they could have filed joint federal returns.  However, the “marriage penalty” could be applicable for some couples and the married filing joint or married filing separate filing status may result in a higher tax liability, especially high-earning couples where both spouses are working.  Each situation will need to be reviewed carefully.  The guidance from the IRS does not require the filing of amended returns for 2012 and earlier years.

Excludable Employer-Provided Fringe Benefits

Employer-provided fringe benefits for the same-sex spouse of an employee will now be excludable from gross income.  Employers should stop including this benefit in income as of September 16, 2013.  The IRS issued guidance on September 23, 2013, on how employers can claim a refund of Social Security and Medicare taxes that they and the employee paid on these benefits for prior years, as well as amounts withheld during the current tax year.

Also, now that taxes should no longer be a factor, some couples may want to re-evaluate their health insurance choices.  One spouse may now be able to move onto the other’s more generous plan, which may also be more affordable.  You should check with your employer to see if perhaps an open enrollment period was created for this purpose.

Also, even if not changing health plans, you can file an amended return to obtain a refund of taxes you paid on those benefits in previous years that are still open for amending (generally returns filed within the last three years).  We can discuss this option with you in more detail so you can see the tax effect of other changes that would occur on the amended return when you change your filing status.

 Adoption Credit

Some couples will need to consider the impact of amending past returns on the adoption tax credit and whether the change in federal filing status will have an impact on the credit.

Deductible and Includable Alimony

Married same-sex couples who later divorce should be able to take a deduction for alimony, which would be includable in the income of the recipient.  Previously married same-sex couples who are now divorced may be able to amend returns for the same reason.

Income Tax-Free Transfers of Property Between Spouses

Gain or loss should not be recognized on the transfer of property between same-sex spouses or between former spouses incident to a divorce.  It remains unclear how previous transfers and the basis of those assets will be affected.  The IRS may issue further guidance on this point.

Gift and Estate-Tax Free Transfers/Unlimited Marital Deduction

 Married same-sex couples may claim the unlimited marital deduction for federal estate and gift tax purposes, allowing a spouse to transfer an unrestricted amount of assets to his or her spouse at any time, including at the death of the transferor, free from gift and estate taxes.  The unlimited marital deduction is considered an estate preservation tool because assets can be distributed to a surviving spouse without incurring estate or gift tax liabilities.  Some couples that set up trusts to avoid double taxation on assets being passed along to their partners may find that a trust is no longer necessary now that assets can be passed directly to a spouse tax-free.  Others may want to update their trusts to give their spouses tax-free access to the trust’s income or principal, an option this is now available to married same-sex couples.

 In addition, married same-sex couples can now elect to split gifts in order to take advantage of doubled annual gift tax exclusion ($14,000 for 2013, for a total tax-free gift of $28,000).  Married same-sex couples may also share assets without being subject to gift taxes.  For example, prior to the ruling, couples that owned a house together but did not equally split mortgage payments and other expenses may have had those expenses covered by one spouse be subject to gift taxes if they exceeded $14,000 annually.  Now that same-sex marriages are recognized for federal tax purposes, some married same-sex couples may feel more comfortable adding their spouse’s name to the property title, knowing that they have more flexibility on how they choose to split those expenses and with no gift tax implications.

 Portability of Unused Estate Tax Exemption Amount

 The American Taxpayer Relief Act of 2012 extended permanently the concept of portability, which generally allows the estate of a surviving spouse to utilize the unused portion of the estate tax applicable exclusion amount ($5.1 million in 2012, and $5.25 million in 2013) of his or her last predeceased spouse.  Now, the surviving spouse of a married same-sex couple can take advantage of portability of the unused estate tax exemption amount of his or her deceased spouse.

Related Party Rules

Same-sex married couples who are now considered married for federal income and gift and estate purposes are subject to related party rules.  This could impact the tax consequences of transactions between same-sex spouses.  Prior to this ruling, married same-sex couples were treated for tax purposes as not related for certain transactions such as selling property between them and recognizing a loss.  After this ruling, recognition of this same loss would not be allowed under the related party rules.

Spousal IRA Contributions, Rollovers, and Required Minimum Distribution

Married same-sex couples now have many more retirement plan options and issues to consider, including spousal IRAs, contributions, beneficiary designations, rollovers, and required minimum distribution (RMD) rules.  Married same-sex couples with the only beneficiary a spouse who is more than 10 years younger can now use the joint table rather than the “uniform table” for distributions.  A surviving spouse can now consider whether to make a spousal rollover of a deceased spouse’s IRA or 401(k).  The IRS has promised further guidance regarding both prospective and retroactive changes to pension plans, IRAs and retirement distributions.

Other Federal Benefits

In addition, below are some of the federal benefits or protections that may now be available to legally married same-sex couples:

  • Social Security, Medicare, and Medicaid  benefits
  • Certain veterans benefits, such as pensions and survivor’s benefits
  • Military spousal benefits
  • Family medical leave rights
  • Spousal visas for foreign national spouses
  • Private pension benefit options (e.g., survivor annuities)
  • Application of the thresholds for the tax penalties and health insurance subsidies available under the Patient Protection and Affordable Care Act

Income and Estate and Gift Tax Planning Issues

Some of the specific individual income tax and estate and gift tax planning issues that may be impacted and should be considered are:

  • Income Tax Planning Issues
    • Joint tax returns
    • Amended income tax returns
    • Estimated tax payments for 2013
    • Income tax returns beyond the statute of limitations
    • Rollover IRAs at death
    • Spousal IRA contributions and rollovers
    • IRA required minimum distributions
    • Review of the designated beneficiary on retirement and other benefits provided by an employer
    • Divorce tax issues
    • Application of the adoption tax credit
  • Estate & Gift Tax Planning
    • Updated estate plans and documents
    • Inter vivos gifts
    • Amended gift tax returns
    • Gift and estate tax returns beyond the statute of limitations
    • Portability of unused applicable lifetime exemption
    • Grantor trusts
    • Spousal rollover
    • Beneficiary designations
    • Retirement plans
    • Community property rules
    • Marital Agreements

Guidance From the Federal Government

The Supreme Court’s DOMA ruling generally means that married same-sex couples are entitled to the same federal benefits as heterosexual couples, but it does not necessarily make financial planning and tax compliance for married same-sex couples less complicated.  Also, it may take time to fully implement the Supreme Court’s decision.  Marriage is the “trigger” for more than 1,000 tax and benefit provisions in the Tax Code and other federal statutes.

Federal government agencies, including the Treasury Department and Internal Revenue Service, will continue to review and modify rules and regulations.  Employers will need to review and revise their policies and procedures regarding benefits and withholding.  Married same-sex couples will need to consider the new rules and policies, including their tax situation.  Affected couples should consider updating their estate plans based upon the estate and gift tax impact, as well as their financial plans.

There may be some state tax issues to address as well.  For example, federal employees may be entitled to certain benefits that others are not, and states likely will need to clarify what the state tax treatment is if the state does not recognize same-sex marriage.  Also, for couples living in states that do not recognize same-sex marriage, the state will likely provide guidance on how to obtain the federal tax amounts to file state income tax returns. 

It is expected that the IRS publications and website information that provide guidance to married individuals will be revised.
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14
Nov

Social Security and Medicare Figures for 2014

New figures announced

The Social Security Administration (SSA) has announced that Social Security and SSI beneficiaries will receive a 1.5% cost-of-living (COLA) adjustment for 2014. According to the SSA’s announcement, after the COLA adjustment, the estimated average retirement benefit will rise from $1,275 in 2013 to $1,294 in 2014.

The Centers for Medicare & Medicaid Services (CMS) has also announced next year’s Medicare costs. The standard monthly Medicare Part B premium will be $104.90 in 2014, the same as in 2013. However, beneficiaries with higher incomes (individuals with taxable incomes of more than $85,000 and couples with taxable incomes of more than $170,000) will pay more than $104.90 per month because they must pay an income-related surcharge.

Other important Social Security and Medicare figures are listed below.


2014 Social Security figures

  • The amount of taxable earnings subject to the Social Security tax (called the maximum taxable earnings limit) will increase to $117,000 from $113,700 in 2013.
  • The annual retirement earnings test exempt amount for beneficiaries under full retirement age will increase to $15,480 from $15,120 in 2013. If a beneficiary has earnings that exceed the exempt amount, $1 in benefits will be withheld for every $2 in earnings above the exempt amount.
  • The annual retirement earnings test exempt amount that applies during the year a beneficiary reaches full retirement age will increase to $41,400 from $40,080 in 2013. If a beneficiary has earnings that exceed this amount, $1 in benefits will be withheld for every $3 in earnings above the exempt amount.
  • The amount of earnings needed to earn one Social Security credit will increase to $1,200 from $1,160 in 2013.


2014 Medicare figures

  • The Medicare Part B deductible will be $147, the same as in 2013.
  • The monthly Medicare Part A premium for those who need to buy coverage will cost up to $426, down from $441 in 2013. However, most people don’t pay a premium for Medicare Part A.
  • The Medicare Part A deductible for inpatient hospitalization will be $1,216, up from $1,184 in 2013. Beneficiaries will pay an additional daily co-insurance amount of $304 for days 61 through 90, up from $296 in 2013, and $608 for stays beyond 90 days, up from $592 in 2013.
  • Beneficiaries in skilled nursing facilities will pay a daily co-insurance amount of $152 for days 21 through 100 in a benefit period, up from $148 in 2013.
 

The foregoing is provided for information purposes only. It is not intended or designed to provide legal, accounting, tax, investment or other professional advice. Such advice requires consideration of individual circumstances. Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained. JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

 

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6
Nov

IRA and Retirement Plan Limits for 2014

 

  The release of the 2014 limits is a reminder to make sure you maximize your 2013 contributions before December 31, 2013 in addition to starting your 2014 planning.  
     
   IRA contribution limits
The maximum amount you can contribute to a traditional IRA or Roth IRA in 2014 remains unchanged at $5,500 (or 100% of your earned income, if less). The maximum catch-up contribution for those age 50 or older in 2014 is $1,000, also unchanged from 2013. (You can contribute to both a traditional and Roth IRA in 2014, but your total contributions can’t exceed this annual limit.)Traditional IRA deduction limits for 2014

The income limits for determining the deductibility of traditional IRA contributions have increased for 2014 (for those covered by employer retirement plans). For example, you can fully deduct your IRA contribution if your filing status is single/head of household, and your income (“modified adjusted gross income,” or MAGI) is $60,000 or less (up from $59,000 in 2013). If you’re married and filing a joint return, you can fully deduct your IRA contribution if your MAGI is $96,000 or less (up from $95,000 in 2013). If you’re not covered by an employer plan but your spouse is, and you file a joint return, you can fully deduct your IRA contribution if your MAGI is $181,000 or less (up from $178,000 in 2013).

If your 2014 federal income tax filing status is:

Your IRA deduction is reduced if your MAGI is between:

Your deduction is eliminated if your MAGI is:

Single or head of household

$60,000 and $70,000 $70,000 or more

Married filing jointly or qualifying widow(er)*

$96,000 and $116,000 (combined) $116,000 or more (combined)

Married filing separately

$0 and $10,000 $10,000 or more

*If you’re not covered by an employer plan but your spouse is, your deduction is limited if your MAGI is $181,000 to $191,000, and eliminated if your MAGI exceeds $191,000.

Roth IRA contribution limits for 2014

The income limits for Roth IRA contributions have also increased. If your filing status is single/head of household, you can contribute the full $5,500 to a Roth IRA in 2014 if your MAGI is $114,000 or less (up from $112,000 in 2013). And if you’re married and filing a joint return, you can make a full contribution if your MAGI is $181,000 or less (up from $178,000 in 2013). (Again, contributions can’t exceed 100% of your earned income.)

If your 2014 federal income tax filing status is:

Your Roth IRA contribution is reduced if your MAGI is between:

You cannot contribute to a Roth IRA if your MAGI is:

Single or head of household

$114,000 and $129,000 $129,000 or more

Married filing jointly or qualifying widow(er)

$181,000 and $191,000 (combined) $191,000 or more (combined)

Married filing separately

$0 and $10,000 $10,000 or more

Employer retirement plans

The maximum amount you can contribute (your “elective deferrals”) to a 401(k) plan in 2014 remains unchanged at $17,500. The limit also applies to 403(b), 457(b), and SAR-SEP plans, as well as the Federal Thrift Savings Plan. If you’re age 50 or older, you can also make catch-up contributions of up to $5,500 to these plans in 2014 (unchanged from 2013). (Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.)

If you participate in more than one retirement plan, your total elective deferrals can’t exceed the annual limit ($17,500 in 2014 plus any applicable catch-up contribution). Deferrals to 401(k) plans, 403(b) plans, SIMPLE plans, and SAR-SEPs are included in this limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan–a total of $35,000 in 2014 (plus any catch-up contributions).

The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) plan in 2014 is $12,000, unchanged from 2013. The catch-up limit for those age 50 or older also remains unchanged at $2,500.

Plan type:

Annual dollar limit:

Catch-up limit:

401(k), 403(b), governmental 457(b), SAR-SEP, Federal Thrift Savings Plan

$17,500 $5,500

SIMPLE plans

$12,000 $2,500

Note: Contributions can’t exceed 100% of your income.

The maximum amount that can be allocated to your account in a defined contribution plan (for example, a 401(k) plan or profit-sharing plan) in 2014 is $52,000 (up from $51,000 in 2013), plus age-50 catch-up contributions. (This includes both your contributions and your employer’s contributions. Special rules apply if your employer sponsors more than one retirement plan.)

Finally, the maximum amount of compensation that can be taken into account in determining benefits for most plans in 2014 has increased to $260,000, up from $255,000 in 2013; and the dollar threshold for determining highly compensated employees remains unchanged at $115,000.

 

 

 

 
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