HOW THE AFFORDABLE CARE ACT WILL AFFECT INDIVIDUALS AND THEIR TAX RETURN?

Open Enrollment for 2017 Health Insurance Coverage

The open enrollment period for obtaining or renewing health insurance plans purchased through the federal or a state Marketplace for 2017 will begin on November 1, 2016 and end on January 31, 2017.

Health Coverage Exemptions

Individuals who do not have health insurance for all or part of 2016 may qualify for an exemption from the requirement to have health insurance. If they receive an exemption, they will not be subject to the individual shared responsibility payment (penalty).
How you apply for an exemption depends on the type of exemption. A few exemptions must be applied for through the Marketplace via healthcare.gov. However, most exemptions may be requested when the 2016 federal return is filed.
Regardless of which type of exemption an individual receives or is requesting, they must complete Form 8965 (Health Coverage Exemptions) and include it with their 2016 federal return. If an exemption is granted by a Marketplace an Exemption Certificate Number is issued and must be included on Form 8965, Part I.

What to do if a Taxpayer’s Circumstances Change during 2016

If an individual received an advance premium tax credit (subsidy) to help pay for their 2016 health insurance through the federal or a state marketplace, it is important to remember that it was based on their income from a prior year. In order to ensure that the advance payments closely match the premium tax credit amount that will be calculated on their 2016 federal return, the taxpayer needs to report any significant changes in their income or any change to their family size to the Marketplace if it occurs during 2016. This will allow the marketplace to adjust the subsidy amount in order for the individual to avoid having to pay some of it back when they file their 2016 federal income tax return in 2017.

Things to Know for the Current (2016) Tax Year

Education Credit and Tuition Fees Deduction

Beginning with Tax Year 2016, an individual must receive a Form 1098-T in order to claim an education credit (American Opportunity or Lifetime Learning) or the Tuition and Fees Deduction.

Earned Income Tax Credit (EITC) Changes

The following changes were made that may affect individuals who claim EITC on their returns:
• Taxpayers cannot retroactively (file an amended return) claim the credit for any year the qualifying child did not have a Social Security Number. This provision went into effect immediately when the PATH Act became law on December 18, 2015.
• The IRS can bar an individual from claiming EITC for 10 years if the IRS finds they have fraudulently claimed the credit.
• The EITC is now subject to the penalty for erroneous claim for refunds and credits.
• From now on, all incorrectly claimed refundable credits will be taken into consideration when determining the underpayment penalty.

Changes for Child Tax Credit and the American Opportunity Education Credit

The following changes apply to returns that claim the Child Tax Credit or the American Opportunity credit:
• If the IRS determines that an individual has intentionally disregarded the rules for claiming the Child Tax Credit and/or the American Opportunity Education Credit they can bar them for two years from claiming either or both of these credits.
• Taxpayers cannot retroactively claim either credit for any year the qualifying child did not have a Social Security Number or ITIN in the case of the Child Tax Credit.
• The EIN of the educational institution will be required to be reported on Form 8863. If the EIN is missing the IRS will reject the return.

Trade Preferences Extension Act of 2015 (HR 1295)

This trade bill included the following federal tax related provisions:

Child Tax Credit

Taxpayers who elect to exclude from gross income any amount of foreign earned income or foreign housing costs may not claim the refundable portion of the Child Tax Credit.

Penalty on Filing Information Returns Late

Maximum penalty is increased to $250 (from $100). If the failure is corrected within 30 days, the penalty will now be $50 (was $30).

Tax Year 2016 Annual Changes and Reminders (For Returns Filed During 2017 Filing Season)

Standard Mileage Rates

• Business purposes: 54 cents per mile
• Medical/Moving purposes: 19 cents per mile
• Charitable purposes: 14 cents per mile

Schedule A – Medical Expense Threshold Percentage (Reminder)

Deductible on Schedule A when the medical expenses exceed:
• Taxpayers under 65: 10% of AGI
• Taxpayers 65 or older: 7.5% of AGI
Beginning in 2017 the threshold will be 10% for all taxpayers.

Exemption Amount: $4,050 per exemption

Standard Deduction

Basic:
• Single/Married Filing Single: $6,300
• Married Filing Joint/Qualifying Widow(er): $12,600
• Head of Household: $9,350
Additional Amount for Aged and Blind:
• $1,250 for each
• $1,550 for each individual that is unmarried and a surviving spouse

WHO HAS TO RENEW THEIR ITIN AND HOW THEY CAN RENEW IT

The IRS recently announced how taxpayers with expired Individual Taxpayer Identification Numbers (ITINs) can renew them.
Here are two ways that an ITIN can expire, as explained in the Protecting Americans from Tax Hikes (PATH) Act of 2015, which made changes to the expiration rules for ITINs:
• ITINs issued before 2013 will expire as follows over the next 4 years:
o Issued before 2008 – January 1, 2017 (ITINs with middle digits of 78 and 79)
Beginning in August 2016, the IRS will mail these individuals letters informing them that they need to renew their ITIN and how to do it.
o Issued in 2008 – January 1, 2018
o Issued in 2009 or 2010 – January 1, 2019
Issued in 2011 or 2012 – January 1, 2020.
ITINs issued after 2012 will expire if they are not used on a federal tax return for three consecutive years

Who is Affected for the Upcoming Filing Season

A taxpayer who obtained their ITIN before 2008 or has not used their ITIN for 2013, 2014 and 2015 will need to renew it before they file their 2016 federal tax return this coming filing season.

How to Renew an ITIN

Beginning on October 1, 2016, an individual who needs to renew their expired ITIN must complete a Form W-7 (Application for IRS Individual Taxpayer Identification Number) and submit it to the IRS in one of the following ways:
• Mail the completed Form W-7, along with the original identification documents or certified copies by the agency that issued them, to the IRS address listed on the form.
• Use one of the many IRS authorized Certified Acceptance Agents or Acceptance Agents around the country.
• In advance, call and make an appointment at an IRS Taxpayer Assistance Center in lieu of mailing original identification documents to the IRS.
For renewal purposes, the IRS will not require a tax return to be attached to their submitted Form W-7. Also, taxpayers must use the newest version of the Form W-7 available at the time of renewal. For those renewing in the fall of 2016, the newest version will be available sometime in September (version 9-2016).