Stop! Before You File Your Taxes, This Is What You Need to Know

February 9, 2015

By now you should have received your tax related forms from your employer, your bank(s), your mortgage company, and any other entity that is required to report tax information about you to the IRS (the deadline for these entities to send you the information was January 31).

I’ve done a number of tax-related posts in the past where I talked about the best ways to file your taxes, tax credits, deductions, and tips.

This year I want to focus on new things you might have heard about in the news or will need to know about for filing your 2014 tax return, as well as planning for the 2015 tax year.

Affordable Care Act

This is the first year that you will have to affirm on your tax return that you (and everyone on your return) had qualifying health care coverage (called minimum essential coverage) for calendar year 2014 (or claim an exemption) or make a payment with your return. Most taxpayers already have qualifying health care coverage, and simply have to check a box on their tax return.

If you purchased coverage through the Marketplace, then you will receive a Form 1095-A which provides information about your coverage. In limited circumstances, individuals will be exempt from the coverage requirement and must file Form 8965 with their tax return in order to claim the exemption.

If you did not have coverage or an exemption for the full calendar year, you will need to make a payment with your tax return that is called the “shared responsibility payment.” In general, the shared responsibility annual payment is the greater of a percentage of your household income (1 percent of your household income that is above the minimum amount of gross income an individual of your age and with your filing status must make to be required to file a tax return) or a flat dollar amount (for 2014 the flat dollar amount is $95 per adult and $47.50 per child, limited to a family maximum of $285). You will owe 1/12 of the payment for every month that you or your dependents don’t have coverage or an exemption.

For more information on the calculation, visit the IRS.

The IRS is understaffed

You may have seen the false news reports stating that the IRS was delaying tax returns until October 2015. Take a deep breath – that’s not the case. However, the IRS continues to be understaffed and faces a tighter budget. This year the IRS has warned taxpayers that people who file paper tax returns could wait up to an extra week for their tax return. In addition, filers with errors or questions that require additional review will also face delays. According to the IRS, they still plan to issue 9 out of 10 refunds within 21 days. This also means that the IRS has less resources to answer your questions and give support to taxpayers.

Higher limits on elective deferrals to 401(k), 457(b), and 403(b) plans

For 2015, you can contribute up to $18,000 in elective deferrals to your plans. The catch-up contribution for employees ages 50 and older is now $6,000. Remember, the deferral limit is combined for 401(k) and 403(b) plans, but separate for 457 plans, so you might want to consider opening an account in the PERAPlus 457(b) plan (if your employer offers it). All employees of a PERA employer are eligible to contribute to the PERAPlus 401(k) plan.

New IRA rollover rules

Starting January 1, 2015, you may only do one IRA-to-IRA rollover every 12 months. If you do more than one, the rollover amount will be included in your income for the year and you will also pay the 10 percent early withdrawal penalty (unless an exception applies). In addition, the IRS will also treat that amount as an excess contribution in your IRA, which means that you will pay an additional 6 percent tax for every year that the amount remains in your IRA. Rollovers from traditional IRAs to Roth IRAs are not subject to this new limit, so it will only apply if you are doing a rollover from a traditional IRA to a traditional IRA, or a Roth IRA to a Roth IRA.

IRA contribution limits

For 2015, the maximum IRA contribution limit remains the same as 2014, at $5,500 with an additional catch-up of $1,000 if you are over 50. However, the income limits for claiming a deduction for the IRA contribution have changed. The amount you can deduct is phased out based on your household income. Because the limits vary based on your filing status and whether you are covered by a retirement plan at work, you should visit the charts on the IRS website for information about the limits. (Go here if you are covered by a retirement plan at work or here if you are not covered by a retirement plan at work.)

Good luck with your returns and your retirement planning for 2015. Luckily tax time only comes around once a year. What are you changing in your retirement planning goals for 2015?