The most important Affordable Care Act (ACA) tax provision for individuals and families is the premium tax credit. Individuals without coverage and those who don’t maintain coverage throughout the 2014 year, must have an exemption or make an individual shared responsibility payment. These provisions will affect federal individual income tax returns filed in 2015.
Affordable Care Act Facts:
Please read carefully! The new tax previsions pertaining directly to the Affordable Care Act (also known as ObamaCare) can be very confusing.
Basic Tips to Keep In Mind
• The IRS has created an information campaign to educate taxpayers about some of the basics of the ACA. This campaign will include health care tax tips, YouTube videos and expanded ACA web pages on IRS.gov.
• Many people already have qualifying health care coverage. The IRS expects the vast majority of taxpayers – well over 100 million tax filers – will only need to check a box to indicate that they satisfy the individual shared responsibility provision when they file their tax returns in early 2015.
• Individuals who don’t maintain coverage throughout the year must have an exemption or make an individual shared responsibility payment with their federal income tax returns.
• Individuals and families who receive coverage through the Health Insurance Marketplace may be eligible for the premium tax credit. Eligible individuals and families can choose to have advance credit payments paid directly to their insurance company to lower what they pay out-of-pocket for their premiums.
• Individuals claiming the premium tax credit, including those who received advance payments of the premium tax credit, must file a federal income tax return for the year and attach Form 8962, Premium Tax Credit (PTC).
• If the individual received advance credit payments, they must reconcile those payments with the amount of the premium tax credit actually allowed on the federal income tax return.
Premium Tax Credit
• Individuals and families who get coverage through the Health Insurance Marketplace may be eligible for the premium tax credit.
• In general, an individual who purchases coverage through the Marketplace may be eligible for the premium tax credit if they:
A) Are not eligible for other qualifying coverage, such as government-sponsored coverage
B) or certain employer-sponsored coverage
C) Are within certain income limits
D) Do not file a Married Filing Separately tax return unless they meet certain criteria
E) Cannot be claimed as a dependent by another person
• Individuals and families can have advance credit payments paid directly to the insurance company to lower their premium cost, or they can wait to claim the credit when they file their federal income tax return.
• Anyone receiving advance credit payments should report changes in circumstances. Reporting changes will help make sure taxpayers get the proper type and amount of financial assistance and will help them avoid getting too much or too little in advance.
• If the premium tax credit computed on the federal income tax return is more than the advance payments, the additional amount of the credit will increase the refund or lower the amount of tax owed.
• If the credit on the tax return is less than the amount received in advance, individuals will have to repay excess advance payments and that will increase the amount owed or result in either a smaller refund or a balance due.
• Early in 2015, individuals who bought health insurance through the Marketplace will receive Form 1095-A, Health Insurance Marketplace Statement, which includes information about their coverage and any premium assistance received. Form 1095-A will help individuals complete their tax return.
• Individuals claiming the premium tax credit, including those who received advance payments of the premium tax credit, will attach Form 8962, Premium Tax Credit (PTC) to their federal income tax return.
Individual Shared Responsibility Provision
• Some people already have qualifying health care coverage and therefore don’t need to do anything more than continue their insurance coverage throughout the year.
• Individuals who maintain coverage throughout the year will report their coverage on their federal income tax return by simply checking a box.
• Individuals who don’t have qualifying coverage or who don’t have an exemption may have to make an individual shared responsibility payment when they file their federal income tax return.
• Qualifying coverage includes most employer-sponsored coverage, coverage obtained through a Health Insurance Marketplace, coverage through most government-sponsored programs, as well as certain other plans.
• For 2014, the payment amount is the greater of 1 percent of the household income above the taxpayer’s filing threshold, or $95 per adult plus $47.50 per child (limited to a family maximum of $285). This payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace.
• If for any month an individual or a member of their tax household did not have health care coverage or an exemption, the Form 8965 instructions provide the information needed to calculate the payment that will be reported on the federal income tax return.
• Those who go without coverage or experience a gap in coverage may qualify for a coverage exemption if one of the following applies:
A) They do not have access to affordable coverage
B) They have a gap of less than three consecutive months without coverage
C) They qualify for one of several other exemptions, including a hardship exemption
• How individuals get an exemption depends upon the type of exemption. They can obtain some exemptions only from the Marketplace in the area where they live, others only from the IRS when they file their income tax return, and others from either the Marketplace or the IRS.
• Individuals will use Form 8965, Health Coverage Exemptions to report a coverage exemption granted by the Marketplace – also called the Exchange – or to claim a coverage exemption on their tax return.