Starting with this year’s filing season, taxpayers must report certain information related to health care coverage on their 2014 tax return when they file this April. In addition, taxpayers must provide proof of health insurance coverage or that they have received an exemption.
With that in mind, let’s take a look at how the Affordable Care Act might affect your tax situation, and based on your type of coverage, which new tax forms you might be receiving.
Tip: For additional information about IRS tax forms related to health care insurance, please see the article, Health Care Law: Changes to IRS Tax Forms, below.
The biggest change for most taxpayers is found on Line 61 of Form 1040, where individuals must either check a box to show they had health insurance or pay a penalty. In general, the penalty applies to individuals who did not have health insurance for more than three months in 2014.
In 2014, the penalty is the greater of one percent of modified adjusted gross income or $95 per adult ($47.50 per child under age 18, up to a maximum of $285 per family). While the IRS cannot issue a lien against you in order to make you pay the penalty, they are allowed to withhold the money from your refund.
Certain persons may qualify for an exemption from the penalty such as those who do not need to file a tax return ($10,150 for individuals, $13,050 for heads of household, and $20,300 for a married couples filing jointly). Other exceptions (there are eight in total) include being a member of a federally recognized tribe or qualifying for a hardship exemption if you filed for bankruptcy in the last 6 months or had medical expenses you couldn’t pay in the last 24 months that resulted in substantial debt.
Caution: Taxpayers who believe they qualify for an exemption must apply and receive an exemption certificate from the Marketplace.
There’s an additional twist for the approximately eight million people who purchased health insurance through the Healthcare Marketplace (“the Exchanges”), many of whom received subsidies that were paid to insurance companies and applied directly to their insurance premiums.
What taxpayers might not realize is that in many cases these subsidies were based on household size and income for 2012. Remember, the enrollment period began October 1, 2013 before taxpayers had filed their 2013 tax returns.
If income or household size changed in 2014 and the IRS was not notified of these updates, taxpayers may be liable for paying additional subsidy monies or conversely, receive refunds for amounts overpaid. In other words, if you received a bonus in 2014 (change in household income), it could mean that you owe the government money.
Enrollment through an Employer, Private Insurance, Medicaid or Medicare
New Tax Forms: 1095-B, 1095-C
1095-B. If your healthcare coverage is provided by private insurers or self-funded plans, you should receive Form 1095-B; however, because tax year 2014 is a transition year, these forms are not required when filing your 2014 tax return.
1095-C. If your healthcare coverage is provided by your employer, you should receive Form 1095-C; however, because tax year 2014 is a transition year, these forms are not required when filing your 2014 tax return.
Enrollment through the Healthcare Marketplace
New Tax Forms: 1095-A, Form 8962
Form 1095-A. If you purchased health insurance from the Marketplace you will receive Form 1095-A showing details of your coverage such as the effective date, amount of your premium payment, and any advanced premium credit you received.
Form 8962. The amount of any advanced premium credit you received in 2014 is reported on Form 8962. This form is also used to figure out the actual premium credit as well.
No Health Insurance
If you DO qualify for an exemption: Taxpayers must apply for the exemption from the Marketplace and if approved, will receive an exemption certificate number, which must be reported on Form 8965.
If you DO NOT qualify for an exemption: Taxpayers that do not qualify for an exemption and are uninsured are required to pay a penalty (see above) when filing their tax return. Form 8965 is used to calculate the penalty.
Don’t hesitate to call or email with any questions about the ACA and your taxes.