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 Health Insurance Subsidies Could Impact Your Tax Bill

April 15 may seem far away, but it is not too soon to think about your 2014 tax bill if you purchased health insurance through a state- or federally run health insurance exchange.

If you’re getting help paying for your coverage in the form of tax credits that subsidize your monthly insurance premium, you must report any changes that could affect either your eligibility for a subsidy or the amount of subsidy you receive.

Since the dollar amount of any subsidy you receive is calculated based upon your household size and income, any life change that alters that calculation will, in turn, change the amount of subsidy to which you’re entitled.

If your income has risen since you got your health insurance — making you either no longer eligible for a subsidy or eligible for a lower subsidy amount — the IRS expects to collect any extra money you may have received.

For example, getting a raise, changing jobs, adding a second (or third) job, your spouse getting a better-paying job, having a better year in sales than expected — these are all things that would mean more income in your pocket.  And this means you qualify for a lower subsidy amount.

If you don’t report such a change and instead continue to collect your original higher subsidy amount, the IRS will make you repay the amount you owe back by adding it to your 2014 tax bill.  If you are expecting a refund, it will be reduced by this amount.  If you expect to owe money, your bill will be that much higher.

How to Report Income or Life Changes

If you purchased your coverage through healthcare.gov, you must report income or life changes either online or by phone.

Online:  Visit healthcare.gov.  Select “Report income or life changes” and follow the instructions.  You will need your login information and password to access your account.

By Phone:  Call the Marketplace Call Center at 1-800-318-2596.

What Kinds of Changes Must be Reported

According to healthcare.gov, you must report a change if you:

• Get married or divorced
• Have a child, adopt a child, or place a child for adoption
• Have a change in income
• Get health coverage through a job or other program like Medicaid or Medicare
• Move to a new place of residence
• Have a change in disability status
• Gain or lose a dependent
• Become pregnant
• Have any other change that may affect your income and household size
• Have a change in tax filing status
• Have a change in citizenship or immigration status
• Become incarcerated or are released from incarceration
• Have a correction to a name, date of birth, or SSN
• Have a change in tribal status or status as an American Indian/Alaska Native

Be sure to notify the exchange immediately if you experience any of the above.  If the subsidy amount you’re entitled to has changed, you can adjust the amount of credit applied to your monthly premiums and avoid a large tax bill next April.

Some changes will trigger a special enrollment period (SEP) during which you can choose a new plan.  For more information on SEPs, click here.

Let us know if you have any questions.  We are happy to help!

(You can also read more about this in an earlier post on our site.)