Taxable Talk

The Affordable Care Act (aka ObamaCare) is a complex law. For those who gamble, both professionally and as amateurs, there will be a multitude of impacts. The law includes twenty new taxes. Let’s take a look at how these will impact gamblers.

First, the good news (about the only good news in this post): Gambling income is not impacted by the new Unearned Income Medicare Contribution Tax (UIMCT).

That’s about it for good news. The UIMCT will impact gamblers–especially amateur gamblers–indirectly. Suppose you’re an amateur gambler and have $300,000 of winning sessions and $300,000 of losing sessions. While the gambling income itself will not be subject to the UIMCT, the winning sessions will cause such an individual to pay this tax on any unearned income (besides gambling) that he has (e.g. investment income).

The new law requires the purchase of health insurance or you have to pay a penalty. That penalty in 2013 is $95 or 1% of Modified Adjusted Gross Income (MAGI), whichever is greater. Consider an amateur gambler who makes $40,000 in his day job but has $50,000 of winning sessions and $40,000 of losing sessions. His MAGI might be $80,000; 1% of that is $800.

But it gets worse. There are subsidies (tax credits) available to lower income individuals. But those subsidies are based on MAGI, and the gambler’s MAGI is artificially high; no subsidies would be in his future. (Of course, the current ObamaCare software cannot ‘reliably determine’ enrolles’ eligibility for the subsidies….)

Now let’s consider a successful professional gambler who is making, say, $150,000. He’s young (say 23) and doesn’t have health insurance. Given that the penalty would be $1,500 a year, he should consider obtaining insurance. This could be through his parents’ coverage (individuals under age 26 must be offered coverage through their parents’ plan), or through one of the Exchanges that should be available later this year. Indeed, anyone who is making good money should strongly consider doing this. If someone is making $1.5 million, the decision is easy: the $15,000 penalty would be very significant.

There’s one more category of individuals for which there are almost no answers today: expatriates. Consider a professional gambler who lives abroad in, say, Hungary. He’s a US citizen. He’s not eligible for a US-based plan (he’s not in the US). His Hungarian health insurance plan is fine for him, but does it comply with US law?

For now, this is likely not a problem for some. The Departments of Labor, Health and Human Services, and Treasury realized this and issued “transitional relief” that exempts group health insurance coverage through 2015; it appears that most current plans will suffice. However, it’s not so clear for self-employed expatriates: Do they need coverage? Will coverage an individual has in their country of residence suffice? I don’t know the answer, and I doubt many do today.

If this sounds like a mess, good: It is.

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So far, I’ve covered just two of the 20 new taxes in ObamaCare. However, most of the other new taxes are on businesses in the health care industry and won’t directly impact individuals. There is one other issue I do want to cover: the IRS’s ability to collect the individual insurance mandate penalty.

Believe it or not, there is no method that the IRS has to force people to pay the tax directly. The IRS can send you notices, but it appears you can ignore these! However, the IRS can offset tax refunds to pay the penalty. There’s also the obvious question (which doesn’t have an answer): Say you file a tax return and owe $5,095 ($5,000 in tax and $95 for the health insurance penalty). You pay $5,000. Can the IRS apply the money first to the health insurance penalty so you owe $95 in unpaid tax? Or must they apply the payment first to the tax? The courts will likely have to decide that one.

As I’ve written several times, “It’s unpopular, unworkable, and insane.” It remains horribly unpopular with the public. A Democratic Senator believes that the implementation of the new law will be a train wreck (and nothing I’ve seen makes me disagree with him). There’s almost no chance of the law being repealed while President Obama is in office, so we’ll have to deal with the train wreck for at least three more years.

Tags: HealthCareLegislation

This entry was posted on Saturday, September 21st, 2013 at 10:09 am and is filed under Gambling, IRS. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.