How Will the Affordable Care Act Impact Your Taxes?
Beginning this tax season, you may notice some changes on your tax return related to the Patient Protection and Affordable Care Act. Key provisions of the Affordable Care Act, commonly referred to as ACA or “The Healthcare Law”, were implemented starting January 2014 requiring you to report certain health insurance information for you and your family. The Individual Shared Responsibility Provision of this act requires you and each member of your family to either:
- Carry qualifying health insurance, called minimum essential coverage;
- Qualify for an exemption from this coverage requirement; or,
- Make a shared responsibility payment when filing your 2014 tax return
Minimum Essential Coverage
You are considered to have minimum essential coverage (MEC) if you are enrolled in a health plan through one of the following:
- Employer-sponsored coverage,
- Private insurance, or
- Medicare or Medicaid
You also will be considered as having MEC when you purchase a health plan through a Health Insurance Marketplace. When preparing your taxes, you will have to indicate that you have minimum essential coverage. In addition, you will need to report any government subsidy or tax credit you received to purchase health insurance through the Marketplace.
Premium Tax Credit
If you applied for this credit throughout 2014 to reduce your monthly premium, you are required to:
- Reconcile your credit on your 2014 tax return; and,
- File your 2014 tax return no later than April 15, 2015
If you overestimated your 2014 household income when you applied for the tax subsidy, you will receive the remainder of the subsidy in the form of a refundable credit which will increase your refund amount or decrease the amount owed on your tax return.
On the other hand, if you earned more than you projected, you will have to pay a portion, or all, of the subsidy back, which will decrease the refund amount or increase the amount owed on your tax return.
If you purchased insurance through the Health Insurance Marketplace in 2014, you will receive new tax document, Form 1095-A. From 1095-A will be used to prepare your tax return. This form will show details of your insurance coverage including the effective date, amount of premium and the advance premium tax credit.
Exemption from Coverage
Per the individual shared responsibility provision effective January 1, 2014, all individuals must maintain minimum essential coverage for themselves and the dependent unless an individual is exempt from coverage.
There are a total of nine exemptions from the individual mandate. These exemptions are administered by the state and/or the IRS. Some of the most common exemption reasons include:
- Unable to afford health insurance (i.e. the lowest-priced coverage available would cost more than 8 percent of their household income)
- Had medical expenses you could not pay in the last 24 months that resulted in substantial debt
- Had an individual insurance plan cancelled, and believe other marketplace plans are unaffordable
- Received a shut off notice from a utility company
It is important to know that exemptions from coverage can only be provided by the Healthcare Marketplace. If you are claiming an exemption, you should receive an Exemption Certificate and will have to provide your Exemption Certificate Number at the time of preparing your taxes in order to qualify.
Individual Shared Responsibility Payment
ACA includes an individual mandate that imposes requirements on individuals for the maintenance of qualifying health insurance coverage. Under the ACA, individuals who did not have health insurance for more than three months in 2014 must pay a tax penalty also referred to as the “individual shared responsibility payment”. This payment is based on family size and income. The penalty will be prorated based on the number of months you are uninsured and will increase each year.
For tax year 2014, the annual one-time tax penalty will be $95 per adult, or one percent of your total income, whichever is greater. For uninsured children in your family, the penalty is $47.50 per child, with a family maximum of $285 for the year. The tax penalty will be assessed on the 2014 tax return.
Stay Tuned for More on the ACA…
Be on the lookout for the following new tax forms:
· 1095-A – from the Health Insurance Marketplace
· 1095-C – from your Employer (optional for 2014; required for 2015)
· 1095-B – from your Private Insurer (optional for 2014; required for 2015)
Due to the varying aspects of this new law we will continue to focus on the different provisions of ACA in our weekly Tax Tips and on our Facebook page. Also feel free to call our offices (Indianapolis Office – 317-337-9822 or New York Office – 646-326-7986), if you have further questions or concerns.