Individual IssuesChapter 10 pp. 328-3902017 National Income
Tax Workbook™
Individual Issues p. 327
1. Affordable Care Act
2. Net Investment Income Tax
3. Sharing Economy
Affordable Care Act p. 328
All US individuals must:
1. Have qualifying health insurance,
2. Qualify for a coverage exemption,
3. Make an individual shared responsibility payment (ISRP)
Individual Shared Responsibility Payments (ISRP) p. 328
Coverage exemption - Form 8965 No coverage exemption - ISRP▪ Worksheet in Form 8965 instructions▪ 2017 flat dollar amounts
• $695 per adult & $347.50 per child Birth/adoption/death can = full-year No real enforcement by IRS
Silent Returns p. 329
Silent = Return with no health coverage information
As of October 2017 - IRS will reject (as in prior years)
Law requires information on return
Reporting Minimum Essential Coverage (MEC) pp. 329 - 330
MEC reported on F1095 series
Catastrophic plans – qualifies as MEC▪ Does not qualify for Premium Tax
Credit (PTC)
Qualified small employer health reimbursement arrangement (QSEHRA)▪ Employer will issue Form 1095-B
Alternative Proof of MEC pp. 330 - 331
Insurance/Medicare card Form W-2/pay stub showing deduction Explanation of benefits Insurer statement Medical bill showing insurance reimb. Employer document/statement Record of Advanced payments of PTC
Coverage Exemptions pp. 331 - 333
Exemptions - Figure 10.3 (pp. 332-333)
Use Exemption H if:▪ Birth/adoption/death during the year and▪ Coverage exemption claimed for after
birth/adoption or before death
Affordability of Marketplace insurance8.16% for 2017 8.05% for 2018
Premium Tax Credit (PTC) p. 334
Marketplace policies only If household income (HHI)100% - 400%
Federal Poverty Level (Figure 10.4) N/A if employer coverage affordable▪ Self-only cost > 9.69% HHI (9.56% 2018)
Advanced PTC reconciled Form 8962▪ Limit on repayment based on income▪ Must reconcile to get advanced again
Opt-out Paymentspp. 335 - 336
Employee: ▪ Unconditional opt-out or▪ Conditional & employee meets conditions
Employer: ▪ Plan > 12/16/15 → part of employee cost▪ Others → in employee cost after regs final
Form 1095-C, line 15, may be understated
Net Investment Income Tax (NIIT) Overview p. 336
$250,000 Married Filing Jointly$125,000 Married Filing Separately$200,000 Single$200,000 Head of Household$250,000 Qualifying Widow(er)
3.8% x lesser of: 1) Net investment income OR2) Modified adjusted gross income
over the threshold amounts:
Investment Income/Gain p. 337
Interest
Dividends
Annuities
Royalties
Rents
Net Gains subject to NIIT p. 337
Gain from sale of stocks, bonds, or mutual funds
Gain from sale of property not held in a trade or business
Gain from sale of Partnership or S corpinterest
Gain from investment of working capital
Items Not Subject to NIIT p. 337
Subject to SE tax Wages Unemployment compensation Social security benefits Alimony Tax-exempt interest
Items Not Subject to NIIT – cont’d p. 337
Distributions - certain retirement accts
Items excluded from gross income
Nonpassive activity prop sold at gain
Trading activity
Income from a nonpassive activity
Deductions for NIIT p. 337 - 338
Allocable to rent/royalty income Allocable to trade or businesses
subject to NIIT Savings early withdrawal penalties
allocable to income subject to NIIT NOL allocable to NIIT income Allocate with “reasonable method”
Deductions which may need to be allocated p. 338
State & local income taxes Investment interest expense Investment advisory and brokerage fees Rental/royalty related expenses Expenses related to tax issues Expenses incurred by estate/trust
Real Estate Professionalsp. 338
Being a Real Estate Professional does not exclude rental income from NII
Exclude if:1. Participated > 500 hours current year or
> 500 hours 5 of last 10 years2. Can show rental activity is in ordinary
course of a trade or business
Grouping Activities to Avoid NIIT p. 339 Activities = appropriate economic unit▪ Similarities/differences▪ Extent of common control▪ Extent of common ownership▪ Geographical location▪ Interdependencies between activities May regroup in 1st year subject to NIIT
NIIT CalculationIndividuals pp. 339 - 340 File on Form 8960
Applies US citizens and residents
Special Rule for Nonresident spouse▪ If elects to file jointly & does not elect
joint for NIIT, MFS threshold applies
Subject to estimated tax provisions
NIIT for Estates and Trustspp. 340 - 341
3.8% of lesser of▪ Undistributed new investment income or▪ Excess of AGI over dollar amount at which
highest tax bracket begins ($12,500 for 2017) File on Form 8960
Sharing Economy Platformsp. 341
Online platform connects buyers/sellers
▪ Lyft or Uber▪ Airbnb or VRBO▪ Etsy and Thumbtack
Employee vs Independent Contractor?
Reporting & Payment Requirementspp. 341 - 342
Income reported on 1099’s
Estimated tax payments
▪ Owe ≥ $1,000 after credits/withholding
▪ Withholding & credits < smaller of:
1. 90% of tax shown on the tax return
2. 100% of prior year tax
Estimated Tax Penalty & SE Tax p. 342
Estimated tax penalty exceptions:▪ No payment due to casualty, disaster▪ Retired > 62, or became disabled and had
reasonable cause Self-employment tax▪ 15.3% on first $127,200▪ 2.9% on amounts over $127,200 .9% Medicare tax if > threshold
Business Expensespp. 343 - 344
Business use of home▪ Principal place of business▪ Place to meet patients, clients, customers ▪ Separate structure ▪ If sole fixed location, storage space
Actual expenses – Form 8829
Simplified method - $5/sq ft up to $1,500
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