extra credits questions

Just answer few questions follow the requirement. Answer the attached questions related to the Affordable Care Act – Premium Tax Credit. Use the following resources:Attached Appendix (Premium Tax Credit portion)IRS.gov – Premium Tax Credit Questions & AnswersThis extra credit assignment is worth 5 points. To receive full credit you must include the reasoning for your answer: this is the overall requirement. I already attach these two files.
acct_316_extra_credit_questions_need_to_be_questioned.docx

affordable_care_act_appendix__1__book.pdf

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ACCT 316
Extra Credit
Affordable Care Act Questions
1. Which of the following individuals is eligible to claim a Premium Tax Credit for 2015, assuming
their household income is 100% or more of the federal poverty line (FPL), but not more than
400% of the FPL.?
a. Ann, single, who obtained health coverage from her employer.
b. Bob, single, who was on Medicare for all of 2015.
c. Cassie, single, who obtained insurance from the Marketplace. She was eligible for health
coverage from her employer at a cost equal to about 5% of her household income.
Cassie declined coverage from her employer.
d. Doug, single, who obtained insurance from the Marketplace. He was eligible for health
coverage from his employer at a cost that exceeded 9.56% of his household income.
Doug declined coverage from her employer.
e. Erin, her husband and 3-year old daughter. Erin’s employer offered her self-only health
coverage for 2015 with a cost to her equal to 5% of her household income. The coverage
offered for the entire family was at a cost greater than 9.56% of household income.
**Your answer must include the reason that the individual is or is not eligible for the credit.
© 2016 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning
does not guarantee this page will contain current material or match the published product.
Appendix
Affordable Care Act Provisions
AFFORDABLE CARE ACT APPENDIX OUTLINE
1 Introduction, 2
5 Small Employer Health Insurance Credit, 16
2 Individual Shared Responsibility Payment, 3
2a Minimum Essential Coverage, 3
2b Individual Shared Responsibility Payment Computation, 6
6 Additional Medicare Taxes on High-Income Individuals, 16
6a Additional Tax on Earned Income, 16
6b Additional Tax on Unearned Income (Net Investment
Income Tax), 18
3 Premium Tax Credit, 9
3a Qualifying for the Premium Tax Credit, 9
3b Calculating and Claiming the Premium Tax Credit, 9
7 Information Reporting, 19
4 Employer Shared Responsibility Payment, 11
1
2
APPENDIX
Affordable Care Act Provisions
1 INTRODUCTION
To assist in achieving its goals, the ACA includes a number of tax provisions—
impacting both individuals and employers. The ACA tax provisions can be viewed as
a set of “carrots” and “sticks.” The “carrots” provide tax credits to encourage eligible
individuals and employers to take certain actions. In contrast, “sticks” are penalties
that can apply if an individual or employer does not take a particular action, such as
certain employers offering health insurance to their full-time employees.
Under the ACA, individuals must determine if they have health insurance that
meets the definition of “minimum essential coverage.” If not, these individuals may
be required to make an individual shared responsibility payment when they file their
tax return. In addition, taxpayers seeking health insurance through the Health Insurance Marketplace might be eligible for a premium tax credit to reduce the health insurance cost. High-income taxpayers must determine if they are subject to additional
Medicare taxes on their net investment income and their wages and self-employment
1
U.S. Department of Health and Human Services, Key Features of the
Affordable Care Act; www.hhs.gov/healthcare/facts-and-features/keyfeatures-of-aca/index.html. This HHS website also includes additional ACA
background information, including a timeline of the effective dates of key ACA
provisions.
© 2016 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning
does not guarantee this page will contain current material or match the published product.
One of the most sweeping Federal laws enacted in the last decade is known as the
Affordable Care Act, or “ObamaCare.” The Affordable Care Act (ACA) was enacted in
March 2010 to increase the quality and affordability of health insurance, reduce the
number of uninsured individuals in the United States by expanding public and private
insurance coverage, and lower health care costs for individuals and the government.
The following diagram from the U.S. Department of Health and Human Services
provides a helpful summary of the broad aspects of health care reforms the ACA was
intended to address.1
© 2016 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning
does not guarantee this page will contain current material or match the published product.
APPENDIX
Affordable Care Act Provisions
income. Employers face exposure to an employer shared responsibility payment,
while small employers might qualify for a health insurance credit. Due to varying definitions and goals of the ACA, many employers are ineligible for the tax credit and
have no exposure to the shared responsibility payment. Each of these provisions are
discussed in this special appendix to your textbook.
2 INDIVIDUAL SHARED RESPONSIBILITY PAYMENT
The ACA’s “individual mandate”—which has been deemed a “tax” by the U.S. Supreme
Court2—requires a taxpayer and members of the taxpayer’s family to have minimum
essential coverage (MEC) or an exemption from MEC. Individuals not covered by an
employer-sponsored health plan, Medicare, Medicaid, or other public insurance program must secure a private insurance policy or pay a penalty for each month they do
not have health coverage or meet an exemption. The penalty is called the individual
shared responsibility payment (ISRP).3
2a Minimum Essential Coverage
MEC is the level of coverage required by the ACA, and it is intended to ensure that
the health insurance purchased covers the essential health benefits needed by a family. In general, the ISRP will be applied in any month that a taxpayer (or a member
of the taxpayer’s household) does not have MEC. For ACA purposes, the household
(the “shared responsibility family”) includes the taxpayer, spouse (if filing jointly), and
any individual the taxpayer can claim as a dependent, even if not claimed.4
In general, MEC includes:
• Most types of employer-sponsored coverage or coverage purchased directly from
health insurers (e.g., Blue Cross Blue Shield, Humana, Aetna, etc.).
• Most coverage through government-sponsored programs (including Medicaid,
Medicare, and certain benefits for veterans and their families).
• Coverage under health plans offered through the Health Insurance Marketplace
(also called “exchanges”) operated by a state or the Federal government.
• Other health coverage designated by the Department of Health and Human Services
as MEC.
Health insurance options available on the Federal health care exchange are classified
as Bronze (minimum coverage), Silver, Gold, and Platinum (the most comprehensive
coverage). The cost of coverage increases from Bronze to Platinum plans. In addition,
health insurance costs more for older individuals. Insurance costs can also vary based
on geographic area.
If all members of the “shared responsibility family” had coverage for all months of
the year, then compliance is easy. The taxpayer merely checks the box on line 61 of
the 2015 Form 1040 (or its equivalent on Form 1040A or Form 1040EZ) and nothing
more is needed.
61
Health care: individual responsibility (see instructions) Full-year coverage
.
.
.
.
.
61
If all members of the family did not have coverage for all months of the year, then
the taxpayer must determine whether any exemptions apply. If no exemptions apply,
the individual shared responsibility payment must be computed and paid. If owed, the
payment is reported on line 61 of the 2015 Form 1040 (or equivalent line for Forms
1040A and 1040EZ). Thus, the payment is made along with one’s Federal income tax.
2
National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566 (2012).
§ 5000A.
3
4
Reg. § 1.5000A–1(d)(4).
3
4
APPENDIX
Affordable Care Act Provisions
Some taxpayers are exempt from carrying MEC. Exemptions from MEC (and therefore,
from the ISRP) are reported to the IRS on Form 8965, Health Coverage Exemptions.
Two broad classes of exemptions are available: (1) those granted by the health insurance Marketplace that covers the taxpayer’s state (or if none, the Federal Marketplace), and (2) exemptions claimed by the taxpayer when filing Form 8965.
Exemptions granted by an exchange include religious conscience exemption, general hardship (as defined by the Department of Health and Human Services), and
unaffordability based on projected income. When an exchange grants an exemption,
the taxpayer is provided an Exemption Certificate Number (ECN) that is used when
the Form 8965 is filed.
Exemptions claimed by the taxpayer when filing Form 8965 include a short coverage gap (less than three consecutive months during the year), undocumented immigrants, individuals for whom the lowest cost plan option exceeds a specified percentage
of household income (8.05 percent in 2015; 8.13 percent in 2016; 8.16 percent in 2017),
or income below the filing threshold (see Exhibit 1).5 Household income for ISRP purposes is adjusted gross income increased by any tax-exempt interest and tax-exempt foreign income.6
EXAMPLE
1
Larry had health coverage from his employer for January through July 2015. He quit his job at the
end of July and did not have coverage for the balance of the year. Larry does not meet the short
coverage gap exemption because his period without coverage is not less than three consecutive
months. Unless Larry meets a different exemption, he will owe an individual shared responsibility
payment for August through December 2015.7
The IRS provides an online interview tool that can be used to determine whether an
exemption is available: www.irs.gov/uac/Am-I-Eligible-for-a-Coverage-Exemptionor-Required-to-Make-an-Individual-Shared-Responsibility-Payment
EXHIBIT 1
Filing Requirements for Most Taxpayers
2015
Gross Income
2016
Gross Income
$10,300
$10,350
11,850
11,900
Both spouses under 65
$20,600
$20,700
One spouse 65 or older
21,850
21,950
Both spouses 65 or older
23,100
23,200
$ 4,000
$ 4,050
$13,250
$13,350
14,800
14,900
$16,600
$16,650
17,850
17,900
Filing Status
Single
Under 65
65 or older
Married, filing jointly
Married, filing separately
All
Head of household
Under 65
65 or older
Qualifying widow(er)
Under 65
65 or older
5
Rev.Proc. 2014–62, 2014–50 I.R.B. 948, and Rev.Proc. 2016–24, 2016–18
I.R.B. 677.
6
§ 5000A(c)(4)(B); household income is increased by the income of any
dependents in the household who must file a tax return. The definition of
household income differs for purposes of the Premium Tax Credit (discussed later).
7
Reg. § 1.5000A–3(j).
© 2016 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning
does not guarantee this page will contain current material or match the published product.
MEC Exemptions
APPENDIX
Affordable Care Act Provisions
A summary of the various exemptions available appears in Exhibit 2.
EXHIBIT 2
MEC Exemptions
© 2016 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning
does not guarantee this page will contain current material or match the published product.
This chart identifies all of the MEC exemptions available for 2015, including information about where the MEC exemptions can be
obtained and the exemption code used on Form 8965. Exemptions granted by a Marketplace will have an Exemption Certificate
Number issued.
Source: Form 8965 instructions.
5
APPENDIX
EXAMPLE
2
Affordable Care Act Provisions
Luke Bishop is single with no dependents. In 2015, Luke had household income for ISRP purposes
of $60,000. During 2015, Luke’s employer offered him the option of purchasing self-only coverage
at a cost of $5,000. Luke declined the coverage as he felt he could not afford it. Further, he did not
purchase health insurance from any other source (including the Health Insurance Marketplace).
Luke can claim an affordability exemption from carrying MEC because the cost of the insurance
offered by his employer ($5,000) is more than 8.05% of his household income ($4,830; $60,000
8.05%). Luke is not required to determine if any other coverage would have been affordable
(including Marketplace coverage).
Luke would complete a Form 8965 (Health Coverage Exemptions), using Part III to document
that the insurance coverage is considered unaffordable (Exemption Type: A; see Exhibit 2). Luke’s
completed Form 8965 appears on p. 7. As a result, Luke does not owe an ISRP in 2015 (but he also
had no health insurance).
If an individual did not have an offer of health coverage from an employer and
does not obtain coverage elsewhere, additional work is needed to determine if the
affordability exemption is met. The individual must determine the cost of the lowest
cost Bronze plan that could have been obtained on the exchange. For 2015, if the
cost of that plan exceeds 8.05 percent of household income, the affordability exemption is met. This information can be obtained from the individual’s state exchange
website or Federal exchange if there is not a state exchange.
EXAMPLE
3
Karen, age 51, is single and self-employed. She did not purchase insurance for any month of 2015.
Her household income for 2015 is $41,000. Using the exchange website for her state she learns
that the lowest cost Bronze plan would have cost her $378 per month ($4,536 for the year).
Because the cost exceeds 8.05% of her household income ($41,000 8.05% ¼ $3,301), she meets
the affordability exemption for 2015 and does not owe an individual shared responsibility payment. Karen must attach Form 8965 to her Form 1040.
If Karen were instead age 41, her lowest cost Bronze plan would have cost $264 per month
($3,168 for the year). In this scenario, Karen would not meet the affordability exemption because
this cost is less than 8.05% of her household income. Unless Karen meets a different exemption,
she will need to compute an individual shared responsibility payment for 2015.
2b Individual Shared Responsibility Payment Computation
Individuals without minimum essential coverage or an MEC exemption in 2016
will pay an ISRP of the greater of a flat dollar amount of $695 per adult and $347.50
per child up to a maximum of $2,085 per family (three times the flat dollar amount),
or 2.5 percent of household income in excess of the filing threshold (see Exhibit 3 on
p. 8; in 2015, the penalty was $325 per adult and $162.50 per child, or 2.0 percent of
household income in excess of the filing threshold).8 The ISRP cannot be greater than
the national average cost of a Bronze plan premium ($207 per month per individual
for 2015).9 For a family, this monthly maximum is capped at five individuals ($1,035
per shared responsibility family of five or more for 2015).
8
§ 5000A(c)(2) and (3); after 2016, the $695 flat amount will be adjusted
annually for inflation.
9
Rev.Proc. 2015–15, 2015–5 I.R.B. 564. The national average cost of a
Bronze plan premium for 2016 had not yet been released at the time this
appendix was finalized.
© 2016 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning
does not guarantee this page will contain current material or match the published product.
6
© 2016 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning
does not guarantee this page will contain current material or match the published product.
APPENDIX
Form
8965
Department of the Treasury
Internal Revenue Service
Affordable Care Act Provisions
7
OMB No. 1545-0074
Health Coverage Exemptions
2015
Attach to Form 1040, Form 1040A, or Form 1040EZ.
Information about Form 8965 and its separate instructions is at www.irs.gov/form8965.
Attachment
Sequence No. 75
Name as shown on return
Your social security number
Luke Bishop [Example 2]
123-45-6789
Complete this form if you have a Marketplace-granted coverage exemption or you are claiming a coverage exemption
on your return.
Marketplace-Granted Coverage Exemptions for Individuals. If you and/or a member of your tax household
have an exemption granted by the Marketplace, complete Part I.
Part I
(a)
Name of Individual
(b)
SSN
(c)
Exemption Certificate Number
1
2
3
4
5
6
Part II
7a
b
Coverage Exemptions Claimed on Your Return for Your Household
Are you claiming an exemption because your household income is below the filing threshold? .
Are you claiming a hardship exemption because your gross income is below the filing threshold?
Part III
.
.
.
.
Yes
No
.
.
.
.
Yes
No
Coverage Exemptions Claimed on Your Return for Individuals. If you and/or a member of your tax
household are claiming an exemption on your return, complete Part III.
(a)
Name of Individual
8
.
Luke Bishop
(b)
SSN
123-45-6789
(c)
(d)
Exemption Full
Type
Year
A
(e)
Jan
(f)
Feb
(g)
Mar
(h)
Apr
(i)
(j)
(k)
May June July
(l)
Aug
(m)
Sept
(n)
Oct
(o)
Nov
(p)
Dec
X
9
10
11
12
13
For Privacy Act and Paperwork Reduction Act Notice, see your tax return instructions.
Cat. No. 37787G
Form 8965 (2015)
APPENDIX
Affordable Care Act Provisions
Individual Shared Responsibility Payment
EXHIBIT 3
2015
2016
$325
per adult
$162.50
per child
Up to $975
per household
$695
per adult
2% of Annual
Household Income
in Excess of
Filing Threshold
$247.50
per child
2.5% of Annual
Household Income
in Excess of
Filing Threshold
Up to $2,085
per household
Flat $ Amount OR % of Income Flat $ Amount OR % of Income
[whichever is greater]
[whichever is greater]
ISRP Calculation
EXAMPLE
4
Continue with the facts of Example 2, except that in 2015, Luke’s household income for ISRP purposes is $100,000.
Now, Luke cannot claim an MEC affordability exemption. Luke’s affordability threshold is $8,050
(8.05% of $100,000), and he was provided the option of purchasing self-only coverage from his
employer at a cost of $5,000. As a result, unless some other MEC exemption applies, Luke is subject to an ISRP in 2015.
Assuming no other MEC exemption applies, Luke’s ISRP is $1,794, the greater of:
$325 (the flat dollar amount for 2015), or
$1,794 [2% of household income in excess of his filing threshold ($10,300); ($100,000
$10,300) 2%].
Because $1,794 does not exceed the maximum penalty amount ($2,484 for 2015 for an individual), Luke owes an ISRP of $1,794. Luke reports this amount on the appropriate line of the form he
files (line 61 of the 2015 Form 1040).
61
EXAMPLE
5
Health care: individual responsibility (see instructions) Full-year coverage
.
.
.
.
.
61
1,794
The Simon family (husband John, wife Lisa, and their 5-year-old son, Matthew) has $50,000 of household income in excess of the filing threshold in both 2015 and 2016. For both years, they have no
health coverage for any month and do not meet any exemption. Their ISRP is calculated as follows:
Simon Family
2 adults; 1 child
Flat Dollar Amount
John
Lisa
Matthew
Total
Household Income:
OR
% of Income
$50,000
2016
$ 325.00
325.00
162.50
$ 812.50
695.00
695.00
347.50
$1,737.50
2016: 2.5%
2015: 2.0%
ISRP (greater of flat dollar
amount or % of income)
2015
$1,250.00
$1,000.00
$1,000.00
$1,737.50
Note: The calculated ISRP is less than the overall limit: the national average cost of a Bronze plan
[$7,452 in 2015 ($207 12 3 individuals); at time of publication, the IRS had not yet published the
2016 figures].
© 2016 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning
does not guarantee this page will contain current material or match the published product.
8
© 2016 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning
does not guarantee this page will contain current material or match the published product.
APPENDIX
Affordable Care Act Provisions
9
3 PREMIUM TAX CREDIT
Individuals and families whose household incomes are at least 100 percent bu …
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