The following is a summary of important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call for more information about any of these developments. Craig Lisko, 425-679-0538.
Supreme Court upholds subsidies for health care purchased on Federal Exchange. The Supreme Court by a 6-3 vote determined that premium tax credits (also known as health insurance subsidies) under the Affordable Care Act (ACA), are not limited to taxpayers who live in States that have established their own health insurance Exchange but are also available to taxpayers living in States that rely on a Federal Exchange. While acknowledging that the challengers’ arguments were strong, the Supreme Court found that the language of the law was ambiguous in light of the context and structure of the premium tax credit provisions, as well as the role of the subsidies in the ACA as a whole. With these considerations in mind, the Supreme Court concluded that allowing the subsidies for insurance purchased on any Exchange was consistent with the purpose of the ACA.
Supreme Court declares nationwide right to same-sex marriage. The Supreme Court, in a 5-4 decision, struck down four state-wide bans on same-sex marriage, holding that the Fourteenth Amendment requires all States to license a marriage between two people of the same sex. And, since same-sex couples may now exercise the fundamental right to marry in all States, the Court ruled that there is no lawful basis for a State to refuse to recognize a lawful same-sex marriage performed in another State. Tax ramifications of this decision include simplified tax filing for some taxpayers, and new filing choices for those who were in a State-sanctioned domestic partnership or civil union before the Supreme Court’s decision.
New trade laws include wide variety of tax provisions. On June 29, President Obama signed into law two major trade bills: (1) the Trade Preference Extension (TPE) Act of 2015; and (2) and the Trade Priorities and Accountability (TPA) Act of 2015. These new laws contain a variety of tax provisions including the following:
Regulations explain new tax-advantaged ABLE accounts. For tax years beginning after Dec. 31, 2014, states may establish tax-exempt “Achieving a Better Life Experience” (ABLE) accounts, which can be created by disabled individuals to support themselves or by families to support their disabled dependents. Contributions to the accounts are made on an after-tax basis (i.e., contributions aren’t deductible), but assets in the account grow tax free. Withdrawals are tax-free if the money is used for qualified disability-related expenses. A nonqualified distribution is subject to income tax and a 10% penalty on the part of the distribution attributable to earnings. Each disabled person is limited to one ABLE account, and total annual contributions by all individuals to any one ABLE account can be made up to the inflation-adjusted gift tax exclusion amount ($14,000 for 2015).
Comprehensive IRS regulations provide details on how ABLE accounts work, including the following:
Next year’s inflation adjustments for health savings accounts (HSAs). Eligible individuals may, subject to statutory limits, make deductible contributions to an HSA. Employers, as well as other persons (e.g., family members), also may contribute on behalf of an eligible individual. A person is an “eligible individual” if he is covered under a high deductible health plan (HDHP) and is not covered under any other health plan that is not a HDHP, unless the other coverage is permitted insurance (e.g., for worker’s compensation, a specified disease or illness, or providing a fixed payment for hospitalization).
The IRS provided the annual inflation-adjusted contribution, deductible, and out-of-pocket expense limits for 2016 for health savings accounts (HSAs). For calendar year 2015, the limitation on deductions is $3,350 (no change from 2015) for an individual with self-only coverage. It’s $6,750 (up from $6,650 for 2015) for an individual with family coverage under a HDHP. Each of these amounts is increased by $1,000 if the eligible individual is age 55 or older. For calendar year 2016, an HDHP is a health plan with an annual deductible that is not less than $1,300 (no change from 2015) for self-only coverage or $2,600 (no change from 2015) for family coverage, and with respect to which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,550 (up from $6,450 for 2015) for self-only coverage or $13,100 for family coverage (up from $12,900 for 2015).
Certain taxpayers can file delinquent FBARs without penalty. “U.S. persons” (U.S. citizens or residents as well as many entities) who have financial interests in or signature authority over certain financial accounts maintained with financial institutions located outside of the U.S. must file a Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year. The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. Those required to file an FBAR but who fail to properly file one may be subject to a civil penalty. The IRS’s Offshore Voluntary Disclosure Program (OVDP) offers people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfill their tax and information reporting obligations, including the FBAR. In addition, streamlined filing compliance procedures are available to certain persons.
The IRS said that U.S. persons should file delinquent FBARs if they don’t need to use either the OVDP or the streamlined filing procedures, have not filed required FBARs, are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about the delinquent FBARs. The IRS will not impose a penalty for the failure to file the delinquent FBARs if the taxpayer: (a) properly reported on its U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs; and (b) has not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
Monday, April 18 will be 2016 tax deadline for most individual taxpayers. When April 15 falls on a Saturday, Sunday, or legal holiday (which includes a legal holiday observed in the District of Columbia), a return is considered timely filed if filed on the next succeeding day that is not a Saturday, Sunday, or legal holiday. April 15, 2016, will fall out on a Friday, but the Emancipation Day holiday will be observed in the District of Columbia on that day. As a result, the IRS announced that most taxpayers will have until the next business day, Monday, April 18, 2016, to file their Form 1040s. However, because of a special rule for Patriot’s Day observance on Monday, April 18, 2016, taxpayers in Maine and Massachusetts will have until Tuesday, April 19, 2016, to file their tax returns.