Various Tax Benefit Changes for 2014

The following year-end tax information is taken from IRS Newswire IR-2013-87. We have highlighted several points that affect either or both religious with earned income and/or their employees or which are commonly asked about by our members.

Note that the combined standard deduction ($6200) and personal exemption ($3950) for 2014 equals $10,150, which is the threshold amount of income that a religious (under age 65) would have to report in order to be required to file an income tax return in 2015. This could be important when it comes to determining whether a member will be susceptible to paying a tax/penalty if s/he is not covered by a qualified health insurance coverage in accord with the ACA.

Note that Revenue Procedure 2013-35 listing these and other changes is available at http://www.irs.gov/pub/irs-drop/rp-13-35.pdf.

In 2014, Various Tax Benefits Increase
Due to Inflation Adjustments

WASHINGTON — For tax year 2014, the Internal Revenue Service announced today annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2013-35 provides details about these annual adjustments.
The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

• The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
• The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
• The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
• The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).
• The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
• Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
• The annual exclusion for gifts remains at $14,000 for 2014.
• The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.
• The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.
• The small employer health insurance credit [SBHCTC] provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

Details on these inflation adjustments and others not listed in this release can be found in Revenue Procedure 2013-35, which will be published in Internal Revenue Bulletin 2013-47 on Nov. 18, 2013.

Affordable Care Act Provisions to Review before Year-End

The IRS sent out a notice that it has summarized a number of provisions from the Affordable Care Act on its website. Here are some of the more prominent ones that might apply to religious institutes. These should be reviewed before year-end.

↓This first one could affect our members who have sponsored ministries with highly-paid executives or professionals. The employer is responsible for withholding the additional Medicare tax for employees meeting the $200,000 compensation threshold. The tax applies to fringe benefits as well as cash. It also applies to tips.There is an "Employer and Payroll Service Provider FAQs" in the questions and answers section linked to in the following paragraph.

Additional Medicare Tax (From the IRS Website)

A new Additional Medicare Tax goes into effect starting in 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. The IRS and the Treasury Department have issued proposed regulations on the Additional Medicare Tax. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Additional Medicare Tax, see our questions and answers.

↓In 2014 an employer with 50 or more employees will be required to pay for health insurance for all employees. That coverage will be required to provide "minimum value." The comment period mentioned below on the means of determining "minimum value" closed on June 11, 2012.

Minimum Value

On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment. 

↓The IRS invited comments earlier this year on the means by which employers will be required to report on certain information, namely the type and value of the health insurance coverage that they provide. The comment period for both of the notices cited below ended on June 11, 2012

Information Reporting on Health Insurance Coverage

On April 26, 2012, the Department of the Treasury and IRS issued Notices 2012-32 and 2012-33, which invited comments to help inform the development of guidance on annual information reporting related to health insurance coverage. The information reporting is to be provided by health insurance issuers, certain employers that sponsor self-insured plans, government agencies and certain other parties that provide health insurance coverage.

↓The IRS reminds small employers that they may be eligible for the Small Business Health Care Tax Credit (SBHCTC) if they have below a certain number of employees and the average salary is below a threshold amount. Details are available on the IRS website. A number of RCRI members have taken advantage of this refundable credit. 

Small Business Health Care Tax Credit

This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers and our news release.

↓Employers who provide health insurance to employees when the employee wants to include a child up to age 27 may want to review the next provision. Employers or the insurance provider can increase the premium, but the employer needs to make sure the extra cost is tax-free to the employee.   

Health Coverage for Older Children

Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Learn more by reading our news release or this notice.

↓Employers will soon have to report on their employees' Forms W-2 the value of health insurance that they pay for their employees. However, the transitional relief that was granted to employers with fewer than 250 employees continues to be in place. That means that if a religious institute employees fewer than 250 people, it does NOT have to report in Box 12 the cost of insurance coverage that it pays for employees. This continues through 2012 (meaning it applies to the forms that the employer files in January 2013). Remember that the members of a religious institute are NOT employees, and therefore they should not be counted when determining the total number of employees. The total number of Forms W-2 might exceed 250 when you combine the employees and the members (for reporting FICA wages). But only the number of actual employees should be considered when determining if the reporting requirement applies for 2012.

Reporting Employer Provided Health Coverage in Form W-2

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.


↓Conclusion
There are a number of other provisions included in the summary of ACA provisions. Please visit the IRS website (http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions) to see if any others apply to your religious institute. See also "Retirement News for Employers" at http://www.irs.gov/Retirement-Plans/Retirement-News-for-Employers.