It’s tax time: Beware the Affordable Care Act

Tax day is fast approaching and if you are not one of the lucky ones who filed early, you need to be aware of a few pitfalls that cropped up this year.

The biggest one is the Affordable Care Act. Many people don’t realize that if they do not have private health insurance and they didn’t bother going through a state health care exchange, they could pay a pretty steep penalty on their taxes.

Steve Wick, CPA at Steven J. Wick & Associates, P.C. in Fort Collins, said that even if people know they are going to pay a penalty, the forms are very confusing.

“If you don’t have insurance or you only had insurance for part of the year or part of your family has it and part doesn’t, it can be confusing figuring out the penalty. If you went through an exchange and got credits to buy insurance, that is a whole other calculation that is horrendous. Thank God for computers. It’s brutal,” he said.

The penalty is the higher of $95 or 1 percent of a person’s modified gross income. A single person earning $50,000 in income would pay a $400 penalty. A family with one child would pay a 2.5 percent penalty based on their modified gross income.

“It gets really scary talking to people. If it is not done right, it is crazy,” Wick said.

He points out that 2014 is the first year these penalties apply. For 2015, it will be 2 percent of your modified gross income for a single person and it will just keep going up from there.

“This is the pinprick year. Next year will be the slap across the face year and then it will get worse after that,” he said.

If you get credits and you figure out your income incorrectly, you will have to pay those credits back.

“That’s going to catch a bunch of people. The people who get the credits are the people who can least afford it,” Wick said.

There are a lot of deductions that people overlook and sometimes they don’t take because they don’t understand them, said James Dye, CPA at Dye & Whitcomb LLC in Fort Collins.

“They don’t want to get in trouble so they don’t take them, but they are certainly entitled to them,” Dye said.

People can save themselves a lot of time in preparing their taxes if they understand that the threshold of medical expenses they can claim has to be over 10 percent of their adjusted gross income.

“So maybe don’t take up time adding up your medical receipts unless you were really sick or you are very low income,” Dye said.

The earned income credit is another one that gets overlooked but could translate into thousands of dollars for lower income people, especially if they have children.

There has been a lot of fraud over the years because of the earned income credit so tax preparers must pay close attention to whether a child qualifies for it or not, Dye said.

Another type of fraud that has become rampant in the last few years is identity theft. People steal Social Security numbers and use them to hold jobs, but they don’t elect to pay taxes. When you go to file your taxes, you get stuck with a tax bill you did not accrue or you find out that someone filed a tax return using your Social Security number.

Dye encourages people to file their taxes as early as possible.

“If someone is going to try and steal your identity, you will know because you get an error message. That happens a lot more than it used to,” Dye said.

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