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IRS Clarifies Rule on Individual or Exchange Coverage for Employees

Posted on: May 30th, 2014
by Daniel Forman


IRS Clarifies Rule on Individual or Exchange Coverage for Employees

On May 16, 2014, the Internal Revenue Service (IRS) issued an FAQ response to clarify whether employers can provide added compensation to employees, so they may purchase individual health coverage.

The IRS FAQ answer says it is illegal for an employer that does not establish health coverage for employees to simply pay for individual coverage through a qualified health plan or a state marketplace (or the federal marketplace). It is also illegal for an employer to provide added cash compensation to an employee to pay for individual coverage.

An employer that takes part in such an arrangement will be subject to an excise tax of $100 per day or $36,500 per year per employee. You can link to the full IRS FAQ here.

Please be sure to share this information with your clients if they are considering a move to individual coverage rather than renewing or purchasing group coverage.

Please note: This notice is about Pre-Tax dollars. If employers want to help employees pay their individual policy premiums, it generally must be on an AFTER-TAX basis.

If you have questions, please contact our office at 916-740-2400.


Posted on: March 3rd, 2014
by Daniel Forman


Another Tax Article?

Around April every year we are bombarded with articles informing us how to avoid (not “evade”) taxes.  The problem for many taxpayers is that some tax reduction strategies need to be implemented long before you file in April.  Another issue is that tax laws are constantly changing, and many accountants are too busy to engage in proactive planning during the tax season. 

However, pre-emptive planning that incorporates tax changes can save you or your business thousands (or tens of thousands) of dollars each year.  Here’s a quick summary of some of the important changes applicable to the 2014 tax year:

3.8% Medicare Surtax on Investment Income: We admit that you have likely been barraged with information about this new tax.  Quite simply, it is an additional tax to individuals or trusts on net investment income (or Modified Adjusted Gross Income) over certain income thresholds.  There are a few things you can do to limit exposure to this new tax, some including the use of a Roth IRA, installment method sales, or possibly converting passive income to earned income.  If you have income from investments, you should consult a qualified advisor on tax reduction strategies.

2014 Contribution Limits: Each year the IRS announces “COLA” (cost of living adjustments) for various tax advantaged savings plans.  Here’s a quick list of the commonly used plans and the associated contribution limits:

  • IRA Contributions $5,500 ($6,500 age 50+)

  • Health Savings Accounts $3,300 for an individual or $6,550 for a family (+$1,000 age 55+)

  • 401K Employee Contributions $17,500 ($23,000 age 50+)

  • Profit Sharing Plans $52,000 per individual (inclusive of all defined contribution deferrals)

  • SEP IRAs 25% of compensation up to $52,000 ($57,500 age 50+)

  • SIMPLE IRA $12,000 ($14,500 age 50+)

Estate Tax & Gifting: There are many misconceptions about how estates are taxed at death.  Truth be told, most Americans will not owe estate taxes when they die (at least at the Federal level).  Currently an individual whose estate is less than $5,340,000 in value ($10,680,000 for married couples) will not pay Federal estate taxes.  Additionally, you can gift $14,000 a year per recipient without triggering the need to file a gift tax return (see IRS Publication 950).  For example, if you had three kids you could gift $14,000 to each (for a total of $42,000 gifted).  If you were married in this example, you and your spouse could each give $14,000 per child for a total of $84,000 gifted.  This money is not considered income to the recipients.

The US tax code is nearly 74,000 pages long and increases in complexity each year.  Owning a business and having a qualified retirement plan remains one of the best ways to reduce your tax liability. If you haven’t already, we encourage you to find an advisor who not only understands taxes, but one who will proactively engage with you in strategic tax reduction planning.  

Christian Baldree, J.D.

Financial Advisor

*This article is intended for informational purposes only and does not constitute specific legal, financial, or tax advice.  You should seek guidance from a qualified tax consultant prior to acting on information in this article. 


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