On December 18, 2015, the "Protecting Americans from Tax Hikes Act of 2015" was signed into law. This impactful legislation, known as the PATH Act, has made numerous tax provisions permanent and has extended provisions that were set to expire at the close of the tax year. In summary, below are some of the more common provisions that were included in the PATH Act that may impact mobile employees.
Tax incentives for individuals
Tax incentives for individuals that are extended through 2016 include:
- The exclusion from gross income of discharge of qualified principal residence indebtedness;
- The treatment of mortgage insurance premiums as qualified residence interest;
- The above-the-line deduction for qualified tuition and related expenses; and
- The credit for new qualified fuel cell motor vehicles.
Tax incentives for individuals that were made permanent include:
- The enhanced child tax credit;
- The enhanced American opportunity tax credit;
- The enhanced earned income tax credit;
- The deduction for certain expenses of elementary and secondary school teachers;
- The provision providing parity between employer-provided mass transit and parking benefits;
- The deduction for state and local general sales taxes;
- The special rule for contributions of capital gain real property made for conservation purposes;
- The provision allowing tax-free distributions from individual retirement plans for charitable purposes.
New provisions signed into law with the PATH Act include:
- For section 529 accounts, qualified higher education expenses now include computer equipment and technology; and
- The ability for taxpayers to roll over an employer-sponsored retirement plan to a SIMPLE IRA, provided the plan has been in existence for at least two years (effective December 18, 2015.)
Start of Tax Filing Season
The Internal Revenue Service announced the on-time opening of the nation's 2016 filing season, which began on January 19, 2016 with the acceptance of electronically filed returns. More than 150 million tax returns are expected to be filed, with more than four out of five expected to be filed electronically. The IRS anticipates issuing of more than nine out of ten refunds within 21 days for taxpayers using electronic filing with direct deposit.
This year, taxpayers have until Monday, April 18, 2016 to file their 2015 tax returns and pay any tax due. Taxpayers living in Maine and Massachusetts have until Tuesday, April 19, 2016 in observance of Patriot's Day. The deadline for taxpayers choosing to contribute to individual retirement accounts, health spending accounts, and education spending accounts also moves to April 18, 2016.
The "ABCs" of Forms 1095 - Reporting for the Affordable Care Act (ACA)
Starting January 1, 2014, the Affordable Care Act required individuals to carry minimum essential health insurance (unless they are exempt) or make a shared responsibility payment. Tax credits and cost-sharing also began in 2014. The 2014 return included new questions and forms to incorporate provisions of the Affordable Care Act.
The following forms were introduced for purposes of reporting certain information to the IRS and to taxpayers with regard to their health insurance coverage. These three forms, in particular, have become more prevalent beginning with the 2015 tax seasons:
- Form 1095-A, Health Insurance Marketplace Statement: Furnished by Health Insurance Marketplace to the IRS and to the individual to report certain information for individuals enrolled in a qualified health plan through the Marketplace. This form is needed for an individual to file an accurate tax return.
- Form 1095-B, Health Coverage: Filed by providers of minimum essential coverage, such as health insurance issuers and carriers, to report certain information to the IRS and to taxpayers about individuals who are covered by minimum essential coverage and therefore are not liable for the individual shared responsibility payment.
- Form 1095-C, Employer-Provided Health Insurance Offer and Coverage Insurance: All Applicable Large Employers (generally employers with 50 or more full-time employees in the previous year) are required to file this form for each employee who was a full-time employee for one or more months of the calendar.
Form 1095-A must be filed with the IRS and furnished to the individual on or before January 31, 2016. The due dates for the 2015 information reporting requirements for Forms 1095-B and 1095-C, however, have been extended. The due date for furnishing the 2015 Form 1095-B, Health Coverage, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, was changed from February 1, 2016 to March 31, 2016. As a result of these extensions, it is possible that individuals might not receive Forms 1095-B or Form 1095-C before filing their 2015 tax returns. For 2015 only, individuals need not amend their returns once they receive their Forms 1095-B or Form 1095-C. For more information, please refer to the IRS Notice 2016-4 on the topic: https://www.irs.gov/pub/irs-drop/n-16-04.pdf
Reminder: Affordable Care Act - US Citizens Living Abroad
US citizens living abroad are subject to the individual shared responsibility provision. However, US citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period. In addition, US citizens who are bona fide residents of a foreign country (or countries) for an entire taxable year are treated as having minimum essential coverage for that year. In general, these are individuals who qualify for the foreign earned income exclusion under section 911 of the Internal Revenue Code. Individuals may qualify for this rule even if they cannot use the exclusion for all of their foreign earned income because, for example, they are employees of the United States. Individuals who qualify for this rule should file Form 8965, Health Coverage Exemptions, with their federal income tax returns.
US citizens, who meet neither the physical presence nor residency requirements, will need to maintain minimum essential coverage, qualify for a coverage exemption or make a shared responsibility payment for each month of the year. For this purpose, minimum essential coverage includes a group health plan provided by an overseas employer. One exemption that may be particularly relevant to US citizens living abroad for a small part of a year is the exemption for a short coverage gap. This exemption provides that no shared responsibility payment will be due for a once-per-year gap in coverage that lasts less than three months.
The information provided is for general guidance only, and should not be utilized in lieu of obtaining professional advice.
Author: Marsha Thomson
Marsha has over 15 years of experience in the world of expatriate tax. She joined GTN in 2013 and currently serves as Manager in GTN's Atlantic region where she focuses on compliance and consulting for independent clients, university and non-profit organizations, and small to emerging size expatriate populations. Marsha has lived in Rwanda, Namibia, and Romania, and has first-hand experience with many of the same challenges that expats face while on assignment. Because of this experience, she is able to translate challenging tax concepts into information that is clear, concise, and understandable. +1.646.915.3300 | email@example.com