Larry Jordan

Jul 18, 2022 by Larry Jordan, in Taxes

Several years ago, I wrote a post describing how taxes are complicated, and one of my examples was the Affordable Care Act (ACA) or Obamacare. Since the penalty for not having health insurance was removed, Obamacare has become much simpler.

Since the American Rescue Plan Act, Obamacare has become increasingly economical. For 2021 and 2022, Obamacare premiums are limited to 8.5% of income. Our premiums are over $20,000, so unless we make over $250,000, Obamacare will lower our costs. 

(We live "no paycheck to no paycheck," with no pension and no social security, so the likelihood of making $250,000 is very low, unless we win the lottery.)

If you are nearing retirement, but you are too young for Medicare, you might consider whether Obamacare makes sense for you. Although this provision is set to expire after 2022, Congress will have a difficult time removing such an economical incentive, and this could be a step toward a single payer system.

Here is an updated version of my original post:

Taxes are complicated.

One day, I told Jill, “There are a few things that you need to know about our taxes, in case I get hit by lightning. For a few years, we have capital loss carryovers, foreign tax carryovers, and margin interest carryovers. Also, we have gas royalties, partnership distributions, and Roth conversions...”

She cut me off, “For a few years, just don't get hit by lightning!!”

You would think that taxes for low-and moderate-income people are not that complicated. Nope.

There are some tax provisions that are targeted to the working poor, such as the earned income credit, and there are other tax provisions that are commonly used by the working poor, such as child credits, dependent care credits, education credits, and retirement savings credits.

Many low- and moderate-income taxpayers participate in the the ACA Marketplace. the Marketplace provides subsidies for health insurance premium, but it can dramatically increase the complexity of a tax return, sometime doubling the times required to complete a return.

The working poor are more likely to receive non-employee compensation, requiring a Schedule C, and more likely to take a distribution from a retirement account, requiring a penalty calculation. Also, they are more likely to have consumer debt forgiven, which creates a tax liability.

Because of the calculations required for provisions targeted to the working poor, preparers like H&R Block might charge $300-500 for returns for low- and moderate-income filers.

The minimum wage is $7.25 an hour, which equals $1,160 a month for a full-time employee. The average rent for a one-bedroom apartment is $950, leaving $210 per month for day care, food, health care, transportation, etc. How can they afford to pay $500 to file their tax returns?

To be continued...

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