Health coverage and tax exemptions.

by Mounica Kota | Oct 18, 2020 | tax deductions, Tax exemption, tax filing

Health coverage and tax exemptions.

According to the individual shared responsibility provision of the Affordable Care Act, you and the members of your family must have the qualifying health coverage. In case there is no coverage available for each month, you would have to make a payment called an Individual shared responsibility payment at the time of filing the Federal Income Tax return.

However, there are some taxpayers who qualify for an exemption from the requirement of making the above-mentioned payment. The major causes for this exemption can be:-

Those taxpayers might not be having access to the health coverage which is affordable,
Those taxpayers might have had a coverage gap which is less than three calendar months or
Those taxpayers have low income and expansion of Medicaid was not done by their respective states.

Moreover, there can be some taxpayers who would have health coverage or would qualify for the exemptions for some months and would owe payments for other months.

The Interactive Tax Assistance Tool of the IRS helps in the determination of your eligibility for a coverage exemption or your responsibility for making the payment of individual shared responsibility. The exemption might have been obtained anywhere; it must be reported by you on Form 8965, Health Coverage Exemptions while filing your Income Tax Returns.

Health Coverage Exemptions

The list of some of the available major health coverage exemptions is mentioned below.

Unaffordable coverage –

The available health coverage you have would be considered unaffordable. Your coverage would be considered as unaffordable when the lowest amount which you must have paid for the employer-sponsored coverage or for the coverage that has been obtained by the Marketplace is much more than a particular percentage of the household income you have for the year.

General hardship –

This means that you had experienced certain circumstances which prevented you from availing the health coverage under a qualified health policy. These circumstances can be eviction, homelessness, domestic violence, foreclosure, unpaid medical bills, etc.

Short coverage gap –

This would mean that you were without any coverage for almost three consecutive months during a year.

Income below the return filing threshold –

This exemption means that your gross income lies below the minimum threshold needed to file a tax return.

Certain noncitizens –

This exemption is for those who are not US citizens and are not present in the country as per the laws. You can qualify for this exemption even if you are having a Social Security number (SSN).

A resident of a state which did not expand Medicaid –

The income of your household is below 138 percent of the federal poverty line for your family’s size. Moreover, during any time of the year, you resided in a state which did not participate in the Medicaid expansion.

Members of the Indian tribe –

This health coverage exemption is available for you when you are a member of a Federally-recognized tribe of India or were eligible for services from an eligible Indian health care service provider.

How to report the coverage exemptions which have been obtained from the Marketplace?

If you are obtained health coverage exemption from the Marketplace, then you would receive an Exemption Certificate Number (ECN). You can report this exemption by entering the ECN in Part I of your Form 8965, Health Coverage Exemptions in Column C. In case, your application for health coverage exemption has not been processed until your time of filing tax returns you must complete Part I of your Form 8965, and your Colum C must have the entry as “Pending”.

Procedure to obtain coverage exemption.

Some of the health coverage exemptions can be easily obtained by applying in the Marketplace. However, there are some which can be obtained by filing a tax return.
In case, you have an income which is below the minimum limit for filing a tax return you would avail exemption from making individual shared responsibility provision. You are not even required to file the federal income tax return for claiming the exception. But, if you are filing a tax return then you must claim a health coverage exemption with your return.
You can claim health coverage exemptions on Form 8965, Health Coverage Exemptions, and attach this to Form 1040, Form 1040A, or even Form 1040EZ.

The process to claim coverage exemptions with the IRS

In case, your household income is below your tax filing threshold and you are filing a tax return then you must use Part II of Form 8965, Health Coverage Exemptions.
The other exemptions are usually claimed on Part III of Form 8965.
You must file only one Form 8965 along with your Forms 1040, 1040A, or 1040EZ for reporting all the health coverage exemptions for yourself, your spouse as well as your dependents.

Conclusion.

So, these basic details on health coverage and tax exemptions would help you in understand the process better.

Tax relief measures for small businesses during the coronavirus pandemic

by Mounica Kota | Mar 21, 2020 | COVID - 19, federal government, global income tax, income tax credit, Investment & Income, Tax credits, tax deadline, Tax exemption, Tax Extension, tax filing, Tax Payers, Tax Refund, taxes, US Government

Tax relief measures for small businesses

during the coronavirus pandemic

The entire nation has been affected by the dreadful coronavirus. The rapid spread of the COVID-19 across the country has affected the economy on a very massive scale. The business operation across the country has come to a standstill especially in the case of small businesses that are tax relief measures. Social distancing and quarantining have led to a decrease in the number of customers coming to purchasing impacting sales. Numbers of employees are also not going on work as everyone is forced to stay inside for preventing further spread of the disease. In such adverse situations where there are huge economic disruptions, the Government is working towards passing legislation that would help in providing financial relief to the businesses and taxpayers.

The Families First Coronavirus Response Act

On March 13th, 2020, President Trump had declared a situation of national emergency along with open access of States and Territories to $50 billion for the shared fight against the disease. Again on 18th March 2020, the Senate had passed the Families First Coronavirus Response Act. This bill was signed by the President on that day which included the below-mentioned highlighted points.

1.Federally mandated paid leave benefits and paid sick leave are to be provided to the eligible employees. The paid sick leave must be provided to the impacted employees for 14 days at the regular rate of pay i.e. max $511 per day. Moreover, employers should also provide the benefits of paid leave to the eligible employees for three months.

2.The availability of tax credits for both employers and self-employed taxpayers have been mandated to reduce the burden of employers arising due to the paid leave

Extension in tax payment and tax return filing deadline

The US Treasury Department and the IRS had announced that the deadlines for filing tax returns and tax payments that are due on 15th April 2020 are extended up to 15th July 2020. This extension is applicable for making filing tax returns for 2019, Income Tax payments for 2019 and the estimated income tax payments for 2020.

If there is a tax refund due, then the Income tax returns must be filed as soon as possible so that the refund can be obtained immediately and put to use in this time of crisis.

Low-interest loans guaranteed by the SBA

When there is a tremendous drop in sales, it becomes quite difficult to manage business expenses, employee wages, bills, etc. In such a situation, a business loan can be taken but then it will have a very high rate of interest. So, to ease down these worries the President has announced that the Government would provide more funds in the federal disaster loans which are backed by the Small Business Administration (SBA). The loans provided by the SBA are known as the Economic Injury Disaster Loan.These loans would help in providing relief for the qualifying businesses in the below-mentioned forms.

Loans at low-interest rates i.e. 3.75% for businesses and 2.75% for non-profit organizations.
Repayment plans are long term in nature i.e. up to a maximum period of 30 years.

If a small business is facing financial issues and is not able to afford bills related to the payroll expenses, fixed debts and accounts payable then it can apply for an “Economic Injury Disaster Loan”.

Moreover, the federal and state financial regulators have been encouraging the financial institutions to work in a co-operative manner with those borrowers who belong to the affected communities.

Cash Payment by the Government

Another measure taken by the Government to provide relief to the small businesses is by providing the Stimulus package. Under this package, stimulus checks would be provided to US adults. On 27th March 2020, President Trump signed the CARES Act into law.

By this Act, cash payments would be provided to adult taxpayers up to $1200 for a single person and up to $2400 for couples. If there is a child, then the amount of the stimulus cheque will include an additional $500.

Those individuals who have earned $75,000 in the adjusted gross income (AGI) on the Income-tax returns of 2018 will be receiving a lower amount. Also, those individuals who do not have a federal tax liability will receive $600 under this proposal.

Deferment of

any amount

The IRS has also announced any amount can be deferred related to the Federal tax. In the Notice 2020-18, the IRS had stated that “there is no limitation on the amount of payment that may be postponed”. Previously, there was a dollar limit on the tax that can be deferred but later on 21st March 2020 this limit has been withdrawn.

This deferment or the postponement of tax payment has only been announced for the federal taxes and is not applicable for any other tax like excise taxes and payroll taxes.

Conclusion

Hence, the various legislations and implementations of new tax laws would be helpful for small business owners to avoid sleepless nights due to tax payments in times of low sales and disrupted business.

References

https://ssfllp.com/coronavirus-covid-19-tax-relief-for-small-businesses/

https://www.patriotsoftware.com/blog/payroll/small-business-relief-coronavirus-pandemic/

Families First Coronavirus Response Act: The new coronavirus relief bill

by Mounica Kota | Mar 19, 2020 | CARES, coronavirus relief bill, COVID - 19, Emergency FMLA, Emergency paid sick leave act, federal income tax, FFCRA, FMLA, global income tax, Tax credits, Tax exemption, Tax Extension, taxes, US Government

Families First Coronavirus Response Act:

The new coronavirus relief bill

The Families First Coronavirus Response Act has been signed by the US President on 18th March 2020 to provide additional relief for those taxpayers who have been affected by the COVID-19. This Act is applicable for all categories of taxpayers such as individuals, self-employed and business entities as well. This new law would be effective starting from 1st April 2020 till 31st December 2020.

There are several provisions included under this legislative package such as free coronavirus testing, food assistance, increase in medical service budget, etc. However, there are four major aspects of the Family First Coronavirus Response Act that apply to businesses. These major aspects include provision for employers to offer paid sick leave, paid family leave and medical leaves, tax credits for the paid leave and the expansion of the insurance related to unemployment.

Emergency Family and Medical

Leave Expansion Act (FMLA)

By this guideline, until the end of December 2020 employers who have a workforce consisting of less than 500 employees must provide their employees with a paid FMLA of up to 10 weeks. The first two weeks of the general 12-week FMLA leave might be unpaid but the employee might be able to be paid by the provision of paid sick leave.

Eligibility for FMLA

Paid FMLA can be availed by an employee who has been employed for at least 30 days and must be taking care of the minor children whose school or child care center has been closed due to the outbreak of COVID-19. An employee who is eligible to obtain FMLA must not be working or even working remotely while taking care of the children.

Payment of employees

during this time

The employers would provide employees unpaid leave for 10 days. Then, the concept of paid leave arises and the employees can receive compensation at two-thirds of their normal rate. The paid leave cannot be more than $200 per day and $10,000 total for a period of full 10 weeks.

Exemptions

Businesses that have less than 50 employees can be exempted from all these provisions if they can prove that by providing the Emergency Family and Medical leave they would be risking to go out of their business.

Employees working in health care organizations or emergency services can be excluded from the emergency FMLA due to the outbreak of COVID-19.

Businesses having fewer than 50 employees are exempted from any civil actions that are brought by employees for creating violations regarding emergency FMLA.

Emergency Paid Sick Leave Act

This is another leave provision of the Families First Coronavirus Response Act which would be effective till the end of December 2020. Employers having fewer employees than 500 should offer paid sick leave to those who meet the criterion associated with a public health emergency.

Eligibility for Emergency Paid Sick Leave

This would be available for all those employees who are unable to work due to the below-mentioned circumstances.

Federal, State or even local quarantine due to COVID-19.
Being advised by the doctor to be self-quarantined due to COVID-19.
Experiencing some symptoms of COVID-19 and under medical supervision

4.Taking care of a family member who has been advised for quarantine

5. Caring for minor children if their schools, child care centers are closed or their caretaker is not available due to COVID-19.

Payment of employees

during this time

1.Full-time employees would receive up to 80 hours of paid sick leave whereas part-time employees can receive paid sick leave based on the number of hours they are working in two weeks.

2. For the reasons like need to have self-isolation as advised by doctors sick leave is received at a normal rate capped at $511 in a day.

3.If it is due to taking care of sick persons or minor children then sick leave obtained is two-thirds of regular pay capped at $200 per day.

Exemptions

Businesses that have less than 50 employees can be exempted from all these provisions if they can prove that by providing the emergency paid sick leave they would be threatening the viability of their business

Tax credits for employers

Since employers are paying the Emergency FMLA or emergency paid sick leave, they can avail of certain reimbursements by tax credits.

In every quarter, private organizations can avail refundable tax credits for FMLA and paid sick leaves. These tax credits would be applied to the Social Security taxes which the employer owes.

2. Even after this, if the businesses are not able to cover the payouts the Treasury Department can help with cash payouts.

3. Moreover, the Treasury can also waive any penalties arising due to the failure of businesses in submitting their payroll taxes due to the anticipation of a refund as per the new laws.

4. Furthermore, the tax credit of employers is increased by the amount it is paying to maintain health care related to sick leave and FMLA.

Emergency Unemployment Insurance

By the FFCRA, the State Governments are allocated with $1 billion in funds for those workers who need unemployment insurance. This Act also removes the issue of unemployed workers to wait for one week to be eligible for Unemployment Insurance. This implies that the workers would be able to apply for the unemployment insurance quite faster.

Conclusion

Hence, with the coronavirus creating havoc in the lives of common people it is also evident that many self-employed individuals and small businesses would suffer losses as well. Layoff and workforce downsizing have already been started in several businesses. In such a stressful situation, the FFCRA is a sincere effort by the Federal Government to bring some alleviation in the economic stress of both employers and employees.

References

5 Things that a COUPLE be mindful of when FILING TAXES

by Mounica Kota | Mar 13, 2019 | Deduction & Credits, Tax credits, Tax exemption, tax filing, Tax Planning, Tax Preparation

5 Things that a COUPLE be mindful of when FILING TAXES?

The decision to marry someone usually revolves around love and compatibility. Finance is an aspect that we don’t know usually bring into the equation. However, Filing Taxes is an aspect that ought to get additional attention, since it comes with tax implications.

You can be a smart couple and save thousands of dollars in a financial year by taking a few key decisions related to taxes. Here are the top 5 things that you need to be mindful of when filing taxes.

Filing Status

Of the many decisions that a new couple has must take, the first one comes down to choosing between the following filing types:

Married filing jointly
Married filing separately

Needless to say, each type has its pros and cons. Let’s assess the benefits of filing jointly first.

On filing together, couples can enjoy lower tax rates since their income is combined and then the taxes are calculated.
It brings in a sense of responsibility as well since both the individuals must sign the filing.
You get access to a wider range of benefits as per the tax codes.

However, there are a few scenarios and conditions where you would want to file separately. Such as:

If a spouse is involved with business and the other partner does not want to be involved with the same.
In the event that a spouse is expecting refunds, filing separately will not jeopardize the refunds as well.

Possibly Lower Taxes

As already mentioned in the above, couples filing jointly can benefit from lower tax rates due to the combination of income. Couples with varying income levels can benefit from it. However, the benefits just do not end with lower taxes. You can opt for several tax credits as well. Here is a couple of them.

Lifetime learning credit
Adoption expense credit

If one spouse itemizes their tax filing, the tax code considers the standard deduction of the other spouse as $0. This ensures that the couple together itemizes and does not miss out on deductions.

Gift Taxes Exemption

Another advantage of filing for taxes jointly comes in the form of gift taxes exclusion or exemption. Here is how it works.

Currently, the annual federal exclusion for gift taxes is $14,000 per spouse.
If you are filing jointly, you can combine this exclusion.
You can use this clause to strategically move assets to loved ones or between both of you.

Cap LessMarital Deduction

This is one of the most understated benefits of filing taxes together as a couple. Though none of the couple’s plans for this, it is good to have feature. Surviving spouses have access to the unlimited marital deduction which allows them to transfer assets to their name. This might not seem that significant early on but gains a lot of momentum as the year’s pass.

Tax Credit

The child tax credit is one of the most alluring credit systems for married couples who want to file jointly. Here are the benefits.

The IRS allows couples to reduce their net taxable income by $1,000 for every qualifying child.
Factors such as relationship, age, dependent status, residence, citizenship and support decide whether your child is qualifying or not.
You can claim the benefits if your child is less than 17 years old, lives with you for more than half of the year and is related to you either by blood, adoption or marriage.

Given the fact that in 2015, 141.2 million taxpayers declared earnings to the tune of $10.14 trillion as adjusted gross income, resulting in taxes worth $1.45 trillion, it is essential that you are aware of the above.

All you need to know about Capital Gains taxation and DTAA for your Indian and US investments

by Mounica Kota | Nov 29, 2018 | capital gains taxation, DTAA, indian investments, tax deductions, Tax exemption, Tax Extension, Taxation, US investments

All you need to know about Capital Gains taxation and DTAA for your Indian and US investments

Capital Gains taxation To ensure that residents do not end up paying taxes at two different places, several countries get into a mutual agreement. The Double Taxation Avoidance Agreement is one such example. The United States of America and India have a rather comprehensive DTAA.

The DTAA is applicable to any individual, company, trust or partnership who have taxable income in both India and the USA. As per the agreement, the following taxes are levied by both countries.

The United States of America imposes the Federal taxes as per the Internal Revenue Code. It doesn’t include any accumulated earning taxes, social security taxes and personal holding taxes. The taxes are also applicable to insurance premiums paid to insurers in India as well as any private foundations.
India levies the Income Tax on the income that you a taxpayer earns in the country. It includes any surcharges but excludes undistributed income declared by some companies.

There are three major ways in which the DTAA can come into the picture.

Tax Credit

In the tax credit mechanism, your country of residence will offer you with tax credits for the taxes paid in the foreign country. This usually is divided as Tax Reserve method, Underlying Tax Credit method or Ordinary tax credit method.

Tax Exemption

In the tax exemption mechanism, the country of your residence exempts any income from the foreign country.

Tax Deduction

In this mechanism, the taxes that you pay in the country where your source of income is then deducted from your total global income and you need to pay taxes only on the residual amount.

Residential Status

Your residential status plays a crucial role in determining which country you should pay your taxes in or how to file your returns. According to Indian laws, if any individual stays for 182 days or more for a financial year, he/she is liable to pay taxes. Similarly, if they have stayed in the country for more than 365 days in the last 4 years and at least 60 days in the current taxable year, they need to pay taxes.

For the USA, the citizenship decides whether or not they should pay taxes. If a person is not a citizen, he/she is a non-resident alien. In such cases, either the substantial presence test or the green card test comes into the picture.

Immovable Property

If you have any immovable property such as real estate, the income generated on selling the same or other incomes from it such as forestry or agriculture will be taxed in the same State. This means, that your property and any earnings from it for a specific financial year will be taxed in India if it were done in India or the USA if it were present in the USA.

Income Through Interest

Any interest that you earn from financial institutions is subject to taxation in the country of residence. However, you might end up paying taxes in the country that you earn the interest owing to certain conditions. For example, if the interest that you earn does not exceed 15% of the gross interest amount that you earn.

Dividend Income

If are a resident of the USA and earn dividends from an Indian country, it will be taxed in the USA. However, it might be subject to taxation in India if it doesn’t exceed certain levels. These include:

15% of the gross dividend amount if the individual own at least 10% of the stocks in a company.
25% of the gross dividend in all other cases.

Being aware of the DTAA will help you avoid paying double taxes in both the countries.