Tax Filing with the Affordable Care Act

With January behind us, it’s time to start thinking about filing your 2014 income taxes.

By now, you should have received most, if not all, of your tax forms and notices from your employer(s), banks, mortgage company, financial institutions, etc. — and, if you bought health insurance on the exchange — the Marketplace.

As we posted several weeks ago, the upcoming tax season promises to be complicated for those who received a subsidy on their health insurance, as well as those who did not have coverage for more than 3 months in 2014.

Here’s what to expect:

IRS Form 1095-A – Health Insurance Marketplace Statement

You should have received Form 1095-A from the Marketplace if you or a family member enrolled in health insurance through the health insurance marketplace in 2014.

Part I of Form 1095-A includes details about you — your name, SSN, date of birth, etc. — and your 2014 coverage — the state where you bought it, the name of the insurance company, and the dates your coverage started and ended.

Part II lists the members of your household covered on your plan.  Only those people who you told the Marketplace you would claim on your tax return will be listed here.

Part III details the following, by month:

1. The premium you paid
2. The premium of the second lowest cost silver plan (this will be used when you file your return to help calculate whether or not you received the right amount of subsidy)
3. The amount of subsidy you received (referred to by the IRS as a premium tax credit or PTC).

Line 33 of Part III includes the sum of each column, giving you the annual totals of each — this will come in handy when you’re ready to file!

You will use the data included on Form 1095-A to complete Form 8962 — Premium Tax Credit (PTC).

IRS Form 8962 – Premium Tax Credit (PTC)

If you received a 1095-A, you must complete Form 8962 and submit it with your Form 1040, 1040A or 1040NR when you file your 2014 taxes.

The IRS will use Form 8962 to reconcile whether you received too much or too little in the way of a premium subsidy for your health insurance last year.

You also must file Form 8962 if you were eligible for a PTC but did not collect the subsidy in advance, and now want to claim it.

If the form looks complicated that’s because it’s complicated!

IRS Form 8965 – Health Coverage Exemptions

The Affordable Care Act’s individual mandate requires that most Americans have health insurance by January 1, 2014.

If you did not purchase health insurance in 2014 because you are exempt from the individual mandate, you must complete IRS Form 8965.

Important:  if you have a Marketplace-granted coverage exemption you must provide an Exemption Certificate Number on Form 8965.  It takes some time for the Marketplace to process exemptions, so don’t delay in submitting your request!  Click here for more information.

Tax Penalty

If you were uninsured for more than 3 months during 2014 and you did not have a valid exemption, you will be assessed a penalty tax when you file your 2014 tax return.

The penalty will be equal to $95 per adult plus $47.50 per child, up to a family maximum of $285 OR 1% household income, whichever is GREATER.

The penalty increases for 2015 and 2016.  Click here for details.

The IRS will deduct your penalty from any refund you are due.  And, your penalty amount will be added to your tax bill if you owe money.

Start Early

Because of the extra complications this year, we recommend you get started on your taxes as early as possible.

The IRS has said repeatedly it does not expect to be able to manage the high volume of calls it will receive.  If you’re filing your tax return on your own, your best bet is to get it done quickly and avoid long delays on the IRS’s phone lines as we get closer to the April 15 filing deadline.

Several tax preparation firms have put together helpful information regarding the reporting requirements surrounding the Affordable Care Act.  We encourage you to take advantage of those resources as well!

Please consult a tax professional for specific tax advice.

 

 

 

How Do Premium Tax Credits Work if My Reported Income is Inaccurate?

For many people — for example, the self-employed, seasonal workers, or those with multiple jobs — income fluctuates throughout the year, and also from year to year.

Or maybe you got a promotion or raise, took on another job, or lost work.  These are other examples of when your income will not be the same as you anticipated.

Having an uneven income can make it difficult to accurately report your income and to predict your eligibility for a premium tax credit for health insurance.

Here are some common questions about what to do if your income is hard to estimate:

Q. I thought my 2014 income was going to be below 400% of the federal poverty level (FPL), so applied for and got a premium subsidy.  What happens if my income actually turns out to be greater than 400% FPL?

A. If your actual 2014 income differs from what you anticipated when you applied for a subsidy, any change in your subsidy amount will be reconciled when you file your 2014 federal income tax return.

If you elected to have your subsidy applied directly to your monthly health insurance premium payments and your income goes up, you likely will have to repay a portion or all of the subsidy you received.  The amount you owe back will be added to your tax bill (or taken out of any refund you may be due).

You should notify your state’s exchange of any change in income — or other change that would affect the calculation of your subsidy — during the year.

Q. Yikes!  I wasn’t expecting to have to pay anything back.  Is there a limit to how much I will need to repay?

A. It depends.  If your actual 2014 income turns out to be over 400% FPL, you will have to pay back the full amount of advance premium tax credit you received throughout the year.

If your 2014 income turns out to be more than you thought but still less than 400% FPL, there are limits on the amount you will need to repay, based upon your income:

• Income under 200% FPL: repay max of $300 for single, $600 for married filing jointly
• Income 200% – 299% FPL: repay max of $750 for single, $1,500 for married filing jointly
• Income 300% – 399% FPL: repay max of $1,250 for single, $2,500 for married filing jointly
• Income 400% FPL or over: must repay full amount

Q. Can I ask for an adjustment to the amount of subsidy I receive when my income goes up or down?

A. Yes, when you notify your state’s exchange of a change in expected annual income, you can also request an adjustment be made to the amount of your premium credit.  The exchange will verify your new information and then send you a redetermination notice detailing your new eligibility information.

Q. When will a premium subsidy adjustment take effect?

A. Your subsidy adjustment will take effect by the first of the month after the redetermination notice.  For example, if you report a change in income on May 27, and you receive a redetermination notice on June 3, the new subsidy amount will be effective on July 1.

Q. How many times during a year can I adjust the amount of premium tax credit I receive?

A. You can adjust the amount of credit you receive as many times as necessary.  Each time you have an income change or other eligibility change that may impact the amount of subsidy you can get, you should report it to your state’s exchange.