No one wants a big surprise at tax time (that would be a really sour note), which is why this year tax professionals are especially recommending that musicians review their tax situation as soon as possible and make any necessary adjustments to withholding or estimated tax payments while there is still time to do so.
Here’s a new item to consider. Taxpayers who obtained health insurance through the Affordable Care Act marketplace system (see www.HealthCare.gov) may be in for a big surprise at tax time.
More than 700,000 New Yorkers were determined to be eligible to enroll in “Obamacare.” Of that number, more than 370,000 have actually selected a plan.
As part of the new health care law, eligible taxpayers may receive a subsidy to help pay their monthly health insurance premiums. This subsidy is paid directly to the health insurance carrier and is considered an advance of the premium tax credit. Eligibility for the subsidy is based on estimated household size and income.
Generally, individuals and families with estimated household incomes for the year between 100 percent and 400 percent of the federal poverty level for their family size are eligible for the subsidy. For 2014, those levels are:
- One person: household income between $11,490 and $45,960
- Family of two: household income between $15,510 and $62,040
- Family of four: household income between $23,550 and $94,200
If the actual 2014 household income exceeds the amounts for the family size and a subsidy was granted, part of the subsidy will need to be repaid on the 2014 federal tax return.
For those who do not receive a subsidy or who get health insurance elsewhere, the tax implication will not be an issue.
In August, the IRS issued draft copies of the health insurance marketplace statement and the premium tax credit form, which must be filed along with the 2014 tax returns of those wishing to claim the credit. If the final drafts of the forms and instructions are not released in sufficient time, those taxpayers who are affected by the Obamacare subsidies as discussed in this article might not be able to file their taxes until everything is set up and approved by the IRS. Ask your accountant or check www.irs.gov for updates.
Walter Gowens is an Enrolled Agent. He formerly worked for the IRS and currently represents clients in various disciplines before the IRS and state tax authorities. Gowens earned an MBA in finance from Indiana University and is president of Prudential Vanguard Financial Services, Inc. He prepares income tax returns and provides other services for those in the performing arts. You can reach him at AAAA@PrudentialVanguard.net.