The most widely talked about tax update relates to the new health care law. Taxpayers will be affected most by the mandate that require individuals to purchase a health insurance or be penalized. The penalty will take effect as the 2014 tax returns will be filed by 2015 as a deduction to tax refunds or an increased ta due if refunds re not available.
By March 31, 2014, all individuals that do not carry a qualified minimum coverage will also incur penalties. The penalty is estimated at $95 per adult plus $47.50 per dependent; or 1% of the household income, whichever is higher. The penalty’s cap is equivalent to the annual cost of a bronze family insurance plan.
Some teachers will also be adversely affected by a written off tax deduction. The legislature has written off as much as $250 of classroom expense, which increases the tax due. This deduction is above the line; that is, a deduction allowed without being itemized. However, this can impact the teachers because they do not have enough deductions to itemize.
The PMI deductions will also be written off beginning this year. Since 2010, homeowners with mortgage insurance premiums are allowed to deduct these amounts along with the related home loan interests. This will be written off effective January 1, 2014.
Another exemption that was removed in the new legislature was the forgiven mortgage debt. Before January 1, 2014, a forgiven mortgage debt is exempted from tax. Beginning this year, distressed homeowners are required to include a forgiven debt as income received. This will increase the homeowners’ tax liabilities in a dramatic way.