Get Ready for Onerous New 1099 Reporting Rules


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Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas If you are like most people, you find yourself paying more for out-of-pocket healthcare costs. You may wonder what benefit you can get on your tax return for all the expenses. The answer for many people is nothing. But you may be one of the fortunate ones who is able to claim healthcare-related tax breaks for health insurance premiums and medical expenses. This presentation explains the rules.

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Get Ready for Onerous New 1099 Reporting Rules

  1. 1. Toll Free: 877.880.4477 Phone: 281.880.6525 Get Ready for Onerous New 1099 Reporting RulesOnerous New 1099 Reporting Rules
  2. 2. With the ever-increasing cost of healthcare, you should be vigilant inlooking for related tax deductions that are available to you. As we willexplain below, a rule change taking effect this year makes a deduction formedical expenses harder for most taxpayers, but you may be overlookingsome deductible health insurance premiums that will offset the harsherrule.
  3. 3. Higher Threshold for Itemized Medical Write-Offs» Before this year, you could claim an itemized deduction for qualified medical expenditures for you, your spouse, and your dependents -- to the extent those expenses exceeded 7.5 percent of your adjusted gross income (AGI).» Your AGI is the number at the bottom of page 1 of your Form 1040. It includes all taxable income items and is reduced by certain write-offs including those for moving expenses, deductible IRA contributions, alimony payments, and student loan interest.» The 7.5 percent-of-AGI hurdle was hard enough to clear. Now, thanks to the 2010 healthcare legislation, an even higher 10 percent-of-AGI threshold applies to most taxpayers -- effective for this year and beyond.» Exception: If either you or your spouse will be 65 or older as of December 31, 2013, the unfavorable 10 percent-of-AGI threshold will not affect you until 2017 (until then, the 7.5 percent-of-AGI threshold will continue to apply in your case).
  4. 4. » Key Point: For the 2012 tax year, the more-favorable 7.5 percent-of-AGI threshold applies to taxpayers of all ages. So the higher threshold, which takes effect this year, does not affect the 2012 tax return due April 15, 2013 (or October 15 if you file for an extension).» Regardless of which percent-of-AGI threshold applies, dont overlook medical expenses that could push you over the applicable threshold. Health insurance premiums often comprise the biggest category of allowable expenses. Heres what you can include in the potentially deductible pot.
  5. 5. Common Health and Dental Insurance PremiumsYou can include garden-variety health and dental insurance premiums tocover you, your spouse, and your dependents--including children. Youcannot deduct premiums to cover an under-age-27 adult child unless he orshe qualifies as your dependent (that generally means you must provideover half the childs support for the year).Source: Internal Revenue Code Section 213.
  6. 6. Premiums for Medicare Parts A, B, C, and D and Medigap CoverageThe IRS now admits that Medicare insurance premiums count as healthinsurance premiums for purposes of the itemized deduction for medicalexpenses. Specifically, premiums for all four Medicare Parts -- A, B, C, andD -- should qualify and premiums for Medigap coverage should too.1 Medicare Part A is commonly called hospital insurance coverage. Most1 eligible individuals are automatically covered for Part A without having to pay premiums because the Part A premiums are considered paid from Medicare taxes on your wages while you or your spouse were working. However if you did not pay Medicare taxes, you may have to pay premiums to get Part A coverage. If so, the Part A premiums for 2012 could have been as much as $451 per month per covered person (up to $5,412 for the year).
  7. 7. 2 Medicare Part B is commonly called medical insurance coverage. Part B 2 coverage together with Part A coverage is often called "original"  Medicare. Part B mainly covers doctors and outpatient services, and  most people must pay monthly premiums for this coverage. For 2012,  you probably paid the standard monthly Part B premium of $99.90  ($1,199 per covered person for the year). Higher-income individuals  paid more--up to a monthly maximum of $319.70 for 2012 (up to  $3,836 per covered person). Part B premiums are usually withheld from your Social Security benefits.  If so, the amount withheld for the year will show up as an adjustment  on Line 3 of Form SSA-1099 (Social Security Benefit Statement), which  you should have received from the Social Security Administration (SSA).  Part B premiums can add up to significant dollars, especially for married  couples when they are being paid for both spouses.
  8. 8. 3 Medicare Part C is for private Medicare Advantage health plan 3 coverage, which is supplemental to government-provided Part A and  Part B coverage. Premiums vary depending on the plan. If you have Part  C coverage, you dont need Medigap coverage (described immediately  below).4 Medicare Part D is for private prescription drug coverage. Premiums 4 vary depending on the plan. Higher-income folks pay an "adjustment  amount" in addition to basic plan premiums. For 2012, the adjustment  amount can be up to $66.40 per month (up to $797 per covered  person). Adjustment amounts are withheld from your Social Security  benefits and will show up as an adjustment on Line 3 of Form SSA-1099,  which you should have received from the SSA.5 Medigap Insurance is private supplemental insurance that functions as 5 an alternative to Part C coverage. Premiums vary depending on the  plan.
  9. 9. Premiums for Qualified Long-Term Care InsuranceThese premiums also count as medical expenses for itemized deduction purposes, subject to the age-based limits shown below. For each covered person, count the lesser of:• Premiums paid in the applicable year or• The applicable age-based limit.
  10. 10. The age-based limits for 2012 and 2013 are listed below. Premiums Paid in 2013 Max Amount Age as of 12/31/13 Treated as Medical Expense 40 or under $ 360 41-50 680 51-60 1,360 61 to 70 3,640 Over 70 4,550 Premiums Paid in 2012 Max Amount Age as of 12/31/12 Treated as Medical Expense 40 or under $ 350 41-50 660 51-60 1,310 61 to 70 3,500 Over 70 4,370
  11. 11. Special Health Insurance Write-Off for Self-Employed FolksSelf-employed individuals who pay their own medical and dental insurancepremiums are generally allowed to deduct these costs "above the line" onpage 1 of Form 1040. This is a good deal because you need not itemize tobenefit from an above-the-line deduction.More good news: You can deduct the cost to cover an under-age-27 adultchild, even if he or she does not qualify as your dependent.
  12. 12. 14550 Torrey Chase, Suite 100 Houston, TX 77014 USA Toll Free : 877.880.4477 Phone : 281.880.6525 Fax : 281.866.9426 E-mail :