Thursday, April 22, 2010

Nearly 4M people could pay without health coverage

Also see
WASHINGTON (AP) – Government economic forecasters say President Barack Obama's health care overhaul will increase the nation's health care tab instead of bringing costs down. The report by economic experts at the Health and Human Services Department, released late Thursday, says the health care remake will achieve Obama's aim of expanding coverage.

But the report says that the law falls short of the president's twin goal of controlling runaway costs. And it warns that Medicare cuts may be unrealistic and unsustainable.

The first comprehensive look at the health care law by neutral experts amounts to a mixed report card for Obama's top priority during his first year in office.
...the analysis also found that the law falls short of the president's twin goal of controlling runaway costs, raising projected spending by about 1 percent over 10 years. That increase could get bigger, since Medicare cuts in the law may be unrealistic and unsustainable, the report warned.

It's a worrisome assessment for Democrats.

In particular, concerns about Medicare could become a major political liability in the midterm elections. The report projected that Medicare cuts could drive about 15 percent of hospitals and other institutional providers into the red, "possibly jeopardizing access" to care for seniors.

The report's most sober assessments concerned Medicare.

In addition to flagging provider cuts as potentially unsustainable, the report projected that reductions in payments to private Medicare Advantage plans would trigger an exodus from the popular alternative. Enrollment would plummet by about 50 percent. Seniors leaving the private plans would still have health insurance under traditional Medicare, but many might face higher out-of-pocket costs.

In another flashing yellow light, the report warned that a new voluntary long-term care insurance program created under the law faces "a very serious risk" of insolvency.
But we don't want health insurance!
Legislators say that health care reform will insure as many people as possible, but not everyone wants insurance. We talk to six people who plan to pay the penalty instead of buying a policy.
Doctors: A tough job just got tougher
What does the health care legislation mean to those providing care? asked physicians to weigh in.
By STEPHEN OHLEMACHER Stephen Ohlemacher

WASHINGTON (AP) – Nearly 4 million Americans — the vast majority of them middle class — will have to pay a penalty if they don't get insurance when President Barack Obama's health care overhaul law kicks in, according to congressional estimates released Thursday.

The penalties will average a little more than $1,000 apiece in 2016, the Congressional Budget Office said in a report.

Most of the people paying the fine will be middle class as Obama's comprehensive law is phased in over the next few years. In his 2008 campaign for the White House, Obama pledged not to raise taxes on individuals making less than $200,000 a year and couples making less than $250,000.

Republicans have criticized the requirement that Americans get coverage, even though the idea was originally proposed by the GOP in the 1990s and is part of the Massachusetts health care plan signed into law in 2006 by then Gov. Mitt Romney, a Republican. Attorneys general in more than a dozen states are working to challenge it in federal court as unconstitutional.

"The individual mandate tax will fall hardest on Americans who can least afford to pay it, many of whom were promised subsidies by the Democrats and who the president has promised would not pay higher taxes," said Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee.

Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee, said while Obama and congressional Democrats celebrate the benefits of the law, they have an obligation to acknowledge the flip side. "There's a price for not participating, and people will pay it," Grassley said.

Democrats argue that the requirement and the penalties are a necessary part of a massive overhaul designed to expand coverage to millions who now lack it. They point out that getting more Americans, especially young and healthy people, in the insurance pool will reduce costs for others and could lower premiums.

"The new law will make health insurance affordable for everyone and CBO's analysis confirms that the vast majority of uninsured Americans will find health care affordable and choose to participate," said White House spokesman Nick Papas.

Americans who don't get qualified health insurance will be required to pay penalties starting in 2014, unless they are exempt because of low income, religious beliefs, or because they are members of American Indian tribes. The penalties will be fully phased in by 2016.

About 21 million nonelderly residents will be uninsured in 2016, according to projections by the CBO and the Joint Committee on Taxation. Most of those people will be exempt from the penalties.

Under the new law, the penalties will be phased in starting in 2014. By 2016, those who must get insurance but don't will be fined $695 or 2.5 percent of their household income, whichever is greater.

After 2016, the penalties will be increased by annual cost-of-living adjustments. People will not be required to get coverage if the cheapest plan available costs more than 8 percent of their income.

The penalties will be collected by the Internal Revenue Service through tax returns. However, the IRS will not have the authority to bring criminal charges or file liens against those who don't pay.

About 3 million of those required to pay fines in 2016 will have incomes below $59,000 for individuals and $120,000 for families of four, according to the CBO projections. The other 900,000 people who must pay the fine will have higher incomes.

The government will collect about $4 billion a year in fines from 2017 through 2019, according to the report.

Saturday, April 17, 2010

Feds Close 8 Banks in 5 States
Regulators Shut Down Banks in Calif., Fla., Mass., Mich. and Wash.; Number of Failures This Year Now 50

(AP) Regulators on Friday shut down eight banks - three in Florida, two in California, and one each in Massachusetts, Michigan and Washington - putting the number of U.S. bank failures this year at 50.

The Federal Deposit Insurance Corp. took over the three Florida banks: Riverside National Bank in Fort Pierce, with $3.4 billion in assets; First Federal Bank of North Florida in Palatka, with $393.3 million in assets; and AmericanFirst Bank in Clermont, with assets of $90.5 million.

TD Bank Financial Group, a division of Canada's TD Bank, agreed to acquire the deposits and nearly all the assets of the three Florida banks.

The FDIC also seized Innovative Bank, based in Oakland, Calif., with about $269 million in assets; Tamalpais Bank of San Rafael, Calif., with about $629 million in assets; City Bank, based in Lynnwood, Wash., with about $1.1 billion in assets; Butler Bank in Lowell, Mass., with $268 million in assets; and Lakeside Community Bank in Sterling Heights, Mich., with $53 million in assets.

Los Angeles-based Center Bank agreed to assume the assets and deposits of Innovative Bank. San Francisco-based Union Bank is acquiring the assets and deposits of Tamalpais Bank. Whidbey Island Bank, based in Coupeville, Wash., is assuming the deposits of City Bank and $704.1 million of its assets. People's United Bank in Bridgeport, Conn., agreed to assume the assets and deposits of Butler Bank.

The FDIC couldn't find a buyer for Lakeside Community Bank. First Michigan Bank in Troy, Mich., will take over the failed bank's direct deposit operations for federal payments, such as Social Security and veterans' benefits.

The failure of Riverside National Bank is expected to cost the deposit insurance fund $491.8 million. For the other banks, the estimated costs: First Federal Bank of North Florida, $6 million; AmericanFirst Bank, $10.5 million; Innovative Bank, $37.8 million; Tamalpais Bank, $81.1 million; City Bank, $323.4 million; Butler Bank, $22.9 million; and Lakeside Community Bank, $11.2 million.

Depositors' money is insured up to $250,000 per account by the FDIC, which is backed by the government.

Last year, 140 banks failed in the U.S. That was the highest annual number since 1992 during the peak of the savings and loan crisis. The failures last year cost the FDIC's insurance fund more than $30 billion.

Twenty-five banks failed in 2008 and three in 2007.

FDIC Chairman Sheila Bair has predicted that the number of bank failures will peak this year and be slightly more than in 2009.

By AP Business Writers Tim Paradis and Marcy Gordon

Monday, April 12, 2010

How to Not Get Audited by the IRS
by William P. Barrett

There Are Some Not-So-Smart Ways to Attract an Audit, or Other Unwanted Scrutiny, From the Tax Enforcers

With increased computer power and more money for staff from the Obama administration, the IRS is gearing up to intensify its audits of individual taxpayers. High income alone is far from the only factor triggering an audit: Last year only 6.4% of the nation's 440,000 highest-income filers were audited.

That means there are steps you can take -- or in some cases, not take -- to minimize the chance of getting audited. Many of the precautions revolve around the wisdom of that old Japanese proverb, "The raised nail gets hammered down." The less attention you can draw, the less likely you are to get audited.

A lot of this is very simple stuff. For instance, make sure that all the Forms 1099 you've gotten for dividend, interest and other investment receipts are reflected somewhere on your tax return, usually on Schedule B. IRS computers have gotten better at matching the copy of the 1099 sent to the agency with your return, and noting any omissions on your return. The result of a mismatch might be a CP-2000 letter from the IRS giving you 30 days to explain the discrepancy, or even the start of an IRS audit.

If you're claiming big deductions for gifts to charity, be sure you meet congressionally ordered paperwork requirements. Those include having a receipt or paper proof for each donation, no matter how small, and written acknowledgment from each charity for every donation of $250 or more. In the case of these larger donations a canceled check won't do -- you must have the charity's letter in hand before you file the return. The IRS is now asking for such paperwork in "correspondence audits" and then denying otherwise valid deductions because of missing or untimely paperwork.

Hobby losses are another favored IRS target. Last year the IRS issued to its agents a manual about how to look for hobby losses, in which taxpayers improperly underwrite their fun and games activity -- say, butterfly collecting or bowling -- by labeling them as businesses and claiming a loss on a Schedule C for self-employment. Any Schedule C listing a loss is audit bait, especially if it looks like you were having a good time.

There's nothing wrong with doing your own return, especially with the help of a computer program like Intuit's (NYSE: INTU - News) TurboTax or H&R Block's (NYSE: HRB - News) At Home, so long as you have the patience to do it. But if you use a tax preparer, find one who is reputable.

The IRS, which is finally moving to regulate the field, has all but admitted it keeps a list of preparers it considers dodgy, but won't tell you who those bad apples are. So be wary of tax pros who base their fees on a specified cut of the refund, claim they can get you bigger refunds than others, or suggest you write off that butterfly collection or claim a credit you're probably not entitled to.

This also may seem like a no-brainer, but do not claim you owe no taxes because the tax system is voluntary, or receipt of Federal Reserve notes isn't income, or you have a Fifth Amendment right against filing self-incriminating tax returns. The IRS considers these frivolous arguments worthy of penalties, which the courts have supported. Ask actor Wesley Snipes, now appealing his three-year sentence for willfully failing to file tax returns.

At the same time, don't shoot off your big mouth about how you put one over the IRS, even if you did. The IRS is now authorized to pay big bucks to people who rat you out. You don't want to end up a convicted tax felon like Orange County billionaire Igor Olenicoff.

The article also warns against using round numbers on the tax return. Round numbers give the impression that the amounts are guesstimates. The IRS doesn't like guesstimates.

Wednesday, April 7, 2010

California Taxes: Who's paying the most?
By Phillip Reese
Published: Wednesday, Mar. 31, 2010 - 9:46 pm
Last Modified: Tuesday, Apr. 6, 2010 - 5:04 pm

It's tax time in California again -- state tax returns must be filed by April 15. But who is paying the most state taxes? Which counties bear the most burden? And how much have state taxes gone up over the years? Check out the graphics below to see ...

Here's the breakdown:
· The wealthy are paying about two-thirds of the state's income taxes.
· California's cities are largely subsidizing rural areas.
· Average income taxes paid have risen sharply.
· But, even with inflation, most Californians earn more than they did a few decades ago.

Monday, April 5, 2010

How health reforms will change taxes
Kathleen Pender
Individuals earning more than $200,000 and couples making more than $250,000 will pay for a good chunk of health care reform through higher Medicare taxes on their earnings and a new Medicare tax on investment income such as dividends, interest and capital gains.

The Medicare tax increases start in 2013. The $200,000 and $250,000 thresholds are not indexed for inflation, so they eventually could reach into the middle class.

The two new Medicare taxes are estimated to raise about $210 billion over 10 years, which accounts for 48 percent of the new tax revenue associated with the act, according to accounting firm Deloitte.

Other parts of the two health care bills signed into law last month will affect people at all income levels. Starting next year, for example, people can no longer use their flexible spending accounts to buy over-the-counter drugs.

Here's a closer look at these and other provisions affecting individual taxpayers, and how much revenue they are expected to raise over 10 years.

-- Higher Medicare tax on earned income: Today, employees pay 1.45 percent of their wages for Medicare tax. The employer pays an additional 1.45 percent of employee wages. Self-employed people pay the employer and the employee's share, or 2.9 percent, of their self-employment income.

Unlike Social Security tax, which does not apply after a certain level of annual income, Medicare tax applies to an unlimited amount of income.

Starting in 2013, employees and the self-employed will pay an additional 0.9 percent in Medicare tax on employment income that exceeds $200,000 per year for single people and $250,000 for couples filing jointly.

Impact: A single person with $250,000 in earnings or a couple with $300,000 would each pay 0.9 percent on $50,000 in earnings, or $450.

If a husband and wife each earns $150,000, their employers won't withhold the additional Medicare tax, but the couple will have to pay it when they file their tax return.

The tax increase does not raise the employer's share of the Medicare tax.

Ten-year revenue estimate: $86.8 billion.

-- Medicare tax on investment income: Today, Medicare tax applies only to income from employment.

Starting in 2013, high-income people will also pay a 3.8 percent Medicare tax on most types of investment income over a certain threshold, including interest, dividends, capital gains, rental income, annuities and royalties. The new tax will not apply to retirement-plan distributions or tax-exempt interest from municipal securities.

The tax is applied to the lesser of the taxpayer's net investment income or the amount of modified adjusted gross income that exceeds $200,000 for singles and $250,000 for couples.

For example, a single man with $220,000 in adjusted gross income and $40,000 in investment income would pay 3.8 percent on $20,000 (the amount over $200,000) or $760, according to publishing firm CCH.

Revenue estimate: $123.4 billion.

-- Applying the two Medicare taxes: The 0.9 percent tax on earned income and the 3.8 percent tax on investment income will be applied separately. Deloitte gives some examples:

A single woman has $190,000 in wages, $30,000 in investment income and adjusted gross income of $210,000. She would owe no additional tax on her wages but would pay 3.8 percent tax on $10,000, the amount of income that exceeds $200,000.

A man has $300,000 in wages, $60,000 in investment income and $350,000 of adjusted gross income. He would pay the extra 0.9 percent tax on $100,000 and 3.8 percent on $60,000.

-- Reining in flex accounts: Beginning in 2013, employees can not put more than $2,500 per year into a cafeteria plan flexible spending account for health care. These accounts, offered by many employers, let employees set aside part of their salary before taxes to pay for medical expenses. Today there is no federal limit, but many employers set limits ranging from $2,500 to $7,500 annually.

The $2,500 limit is indexed to inflation.

Ten-year revenue estimate: $13 billion.

-- No more OTC drugs: Starting next year, employees will no longer be able to use money from their flexible spending accounts to pay for over-the-counter drugs. They will still be able to use them for prescription drugs and insulin. This new rule also applies to health savings accounts and Archer medical savings accounts, which are other ways to save pre-tax money for health care expenses. Estimated revenue: $5 billion.

-- Bigger penalty: People who take money out of a health savings account or Archer medical savings account and don't use it for qualified medical expenses will pay a 20 percent penalty on the amount starting next year. Today, the penalty is 10 percent for HSAs and 15 percent for MSAs.

Estimated revenue: $1.4 billion.

-- Higher hurdle for medical deduction: Today, people who itemize deductions can write off unreimbursed medical expenses that exceed 7.5 percent of their adjusted gross income. This threshold rises to 10 percent of adjusted gross income starting in 2013 for most people and in 2017 for everyone else.

From 2013 through 2016, if a person or the person's spouse is at least 65 at the end of the year, the threshold remains at 7.5 percent.

Revenue estimate: $15.2 billion over 10 years.

-- Penalizing the uninsured: Starting in 2014, most Americans not eligible for Medicare, Medicaid or other government health care must buy a minimum level of coverage or pay a tax penalty.

The annual penalty is a flat dollar amount or a percentage of income, whichever is greater. The flat amount for an adult starts at $95 in 2014 and increases to $695 by 2016. After that, it is indexed to inflation. The penalty for a minor dependent is half the adult amount.

The percent of income starts at 1 percent in 2014, rising to 2.5 percent in 2016 and thereafter. A family's total penalty generally can not exceed three times the adult flat amount.

-- Subsidies for health coverage: Starting in 2014, lower-income people can get a tax credit to help pay for health care. The credit will be on a sliding scale for people whose income falls between 100 and 400 percent of the poverty line. The Internal Revenue Service will determine eligibility.

Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at

This article appeared on page E - 1 of the San Francisco Chronicle

Read more: