Tax Prep Dispatch By Barbara DelBene

That TaxWise Doubletalk!

January 28, 2016

How was your opening day? Busy with goo-gobs of taxpayers? Were you nearly overwhelmed by all of the questions from new volunteers? Frustrated by TaxWise Online slowdowns? The first day is a challenge in many different ways. But I’m guessing that the one thing we all had in common was struggling with the TaxWise ACA worksheet.

The ACA worksheet must be completed for every return. (Well, not every return. This is tax law so there is an exception for returns for taxpayers who can be claimed as a dependent.) Preparers across the country are having a devil of a time correctly interpreting many of the ACA worksheet questions. Let’s translate that TaxWise doubletalk.

Questions About the Entire Return

There are two questions at the top of the ACA worksheet that apply to the entire return.

Question 1

TaxWise says: Did the taxpayer, spouse or any dependent receive insurance through the Marketplace? See Form 8862 — (Yes or

No)

What it means: Did anyone on the tax return get insurance from the Marketplace (aka www.healthcare.gov, aka Obamacare)? If the

answer is Yes, the taxpayer must have a Form 1095-A, Health Insurance Marketplace Statement, in order to finish the tax return.

The effect: A Yes answer adds Form 8962, Premium Tax Credit, to the TaxWise tree and makes it a required form. Completing the

Form 8962 reconciles the advance premium tax credit with the final premium tax credit.

Warning! When the answer is Yes, look and see if the people listed on the Form 1095-A(s) match the people on the return. If not,

the return is probably out of scope.

Question 2

TaxWise says: Was the taxpayer, spouse or any dependent granted a Marketplace exemption or do you want to apply for any of

the exemptions allowed on Form 8965? — (Yes or No)

What it means: Is anyone on the return claiming any kind of exemption?

The effect: Indicating Yes will add Form 8965, Health Coverage Exemptions, to the TaxWise tree and make it a required form. The

exemption(s) could be:

A Marketplace exemption, in which case the taxpayer should have an exemption document from the Marketplace. The exemption certification number should be entered in Part I of Form 8965.

An exemption for everyone on the return, based on income below the filing threshold, Part II, line 7.

Individual exemptions claimed for one or more persons on the return in Part III.

All exemptions are listed in Publication 4012, Volunteer Resource Guide, passages ACA5–ACA-7.

Warning! When any person on the tax return did not have health insurance for any month of the tax year, the preparer should

investigate to see if the taxpayer qualifies for an exemption for any of the uncovered months. It is best to complete the rest of the tax return before considering ACA exemptions. Note: The printed version of the ACA worksheet currently shows an old version of the question that was used in the Practice Lab.

Questions About Each Person

The next section addresses each person separately. One of three boxes must be checked for every person listed on the return. Let’s look at each:

BOX 1

TaxWise says: Had minimum essential coverage and/or is applying for or was granted an exemption for the entire year.

What it means: No individual shared responsibility payment for this person. For each month of the tax year, this person had either

health insurance or an exemption. In other words, in one way or another, this person satisfies the healthcare mandate for every month.

The effect: TaxWise will not compute an individual shared responsibility payment for this person. If this box is checked for everyone

on the return, TaxWise will check the Form 1040, line 61 box, “Full year coverage.”

Warning! This one is easily misread. If TaxWise is generating an incorrect individual shared responsibility payment, it may be

because this box wasn’t checked.

BOX 2

TaxWise says: Had minimum essential coverage and/or is applying for or was granted an exemption for part of the year.

What it means: The taxpayer will have to pay an individual shared responsibility payment for at least one month of the year.

The effect: All of the little boxes for all months of the year become red. The preparer checks the boxes for the months that the

taxpayer had no insurance and no exemption. TaxWise will generate a penalty for every month that is checked.

Warning! This is another tricky one. Just remember: When a preparer checks any of these month boxes, the preparer is dooming

the taxpayer to an individual shared responsibility payment for that person for that month.

BOX 3

TaxWise says: Did not have minimum essential coverage and is not claiming an exemption for any part of the year.

What it means: The taxpayer has to pay an individual shared responsibility payment for that person for the entire year.

The effect: TaxWise will compute an individual shared responsibility penalty.

Warning! Checking this one dooms the taxpayer to an individual shared responsibility payment for the entire year for this person.

TaxWise will not provide a warning during diagnostics, even if question 2 at the top of the worksheet was checked to indicate that an exemption is being claimed.

Summary translation of the three boxes:

Box 1 = no individual shared responsibility payment

Box 2 = individual shared responsibility payment for 1 – 11 months

Box 3 = individual shared responsibility payment for the entire year

Practice Examples

Think you’ve got it down? Read these examples, and then stop and consider: Which boxes would you check?

Example 1

Joe Dispatch is single with no dependents and $19,500 of wage income for 2015. He was out of work in June and July and had no insurance for those months. He had insurance through his employers the rest of the year. He qualifies for the short-term coverage gap exemption.

What boxes would you check on Joe’s ACA worksheet?

His correct ACA worksheet looks like this.

He had two months without insurance, but he has an exemption for those two months—so box 1 is checked. He will need to file Form 8965, completing Part III, with his return to claim the short-term coverage gap exemption.

Example 2

Carol Dispatch is a single mom with one dependent daughter, Sophia (age 5), and $40,500 in wage income for 2015. Carol had no health insurance in 2015. She bought insurance for Sophia through the Marketplace that went into effect January 2015. A few months into the year Carol couldn’t pay the premiums and the insurance was cancelled May 31. Carol is a resident alien and she has an ITIN. Sophia is a U.S. citizen and has an SSN.

What boxes would you check on Carol’s ACA worksheet?

Carol's ACA worksheet would look like this.

Carol should answer Yes to questions 1 and 2 because she did get Marketplace insurance for Sophia and she is claiming an exemption for herself. The rest of her ACA worksheet looks like the screenshot above. Although Carol had no insurance at all in 2015, her noncitizen status gives her an exemption for the entire year. She needs to file Form 8965, completing Part III, to claim the noncitizen exemption. Sophia, a U.S. citizen, is required to have insurance, and Carol will have to pay a penalty for Sophia for seven months.

Example 3

Susan and Jane are married and filing a joint return. They have no dependents and their total income for 2015 was $20,000 of wages. They had no health insurance at all in 2015.

What boxes would you check on Susan and Jane’sThat ACA worksheet?

Susan and Jane’s ACA worksheet looks like this.

Their income is less than their filing threshold ($20,600). They are both therefore exempt for the entire year, and they can both check box 1. They need to file Form 8965 to claim the line 7a household income exemption in Part II.

Example 4

Paulette is single with one dependent son, Jason (age 30). Paulette is self-employed and had net Schedule C income of $35,000 for 2015. She has had no health insurance since she lost her job in 2013. When she turned 65 in August 2015, she started on Medicare. She purchased insurance through the Marketplace for Jason and his coverage started in March 2015.

What boxes would you check on Paulette’s ACA worksheet?

Her ACA worksheet looks like this.

Since Paulette had no insurance January through July, she will have to pay the individual shared responsibility payment for herself for seven months. Jason can claim the short-term coverage gap for January and February and he had insurance the rest of the year so he can check box 1. Paulette needs to file Form 8965, completing Part III, to claim Jason’s short-term coverage gap exemption.

Conclusion

Whew! How’d you do? Checking the right boxes is tricky and oh so important. Be sure to encourage your volunteers to always read the ACA worksheet questions carefully. And remind quality reviewers to look at Form 1040, line 61. If there is an individual shared responsibility payment, reviewers should double check the ACA worksheet and investigate exemption possibilities. Meanwhile, know that some doubletalk is more fun than problematic.

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