Primer on the Affordable Care Act
The Affordable Care Act was passed in 2009 and took effect last year, and can affect your tax return in several ways.
Individual Shared Responsibility
The “Individual Shared Responsibility” provision (sometimes called the “individual mandate”) is key to understanding the tax implications of the ACA. The law requires everyone in your household to have qualifying health insurance, called “minimum essential coverage,” for each month of the year. “Minimum essential coverage” includes employer (or union) provided coverage, government coverage such as Medicare, private insurance, or insurance purchased through a state or federal exchange, a.k.a. “The Marketplace.”
If your entire household had minimum essential coverage for each month of 2014, you simply check the box on Line 61 of Form 1040 and that’s it. Easy. If, however, anyone in your household did not have coverage for any month in 2014, you’ll have to determine if you qualify for an exemption or if you’ll have to make a “shared responsibility payment.”
Exemptions & shared responsibility payment
There are several kinds of exemptions: some you get from the Marketplace and some you just claim on your tax return. Some are based on your membership in certain groups, some are based on your income, and some are based on other factors.
If you didn’t have the required coverage for one or more months and you don’t qualify for an exemption, then you need to make a shared responsibility payment. You pay either according to a flat dollar amount or a percentage of your income. This payment is capped at an amount equal to a national average for “bronze” level coverage.
You claim your exemption or figure your shared responsibility payment on Form 8965.
The Premium Tax Credit
The Premium Tax Credit is an income-based program designed to help eligible taxpayers pay for health insurance premiums. The program is available only if you purchased your health insurance through the Marketplace. When obtaining insurance through the Marketplace, you provided an estimate of your income and chose to have all or part of your credit paid in advance to the insurance provider, or to wait and claim the credit on your tax return. If you got insurance through the Marketplace, you should receive a Form 1095-A from your insurer, giving you the information about your credit. If you had too little of your credit paid in advance, you’ll claim a refund on your tax return. If you got too large an advance credit, you have to repay the difference. You use Form 8962 in both cases.
IRS Publication 5187, Health Care Law: What’s New for Individuals & Families covers this material in detail and is reasonably user-friendly. It’s available at the IRS website, www.irs.gov.
The IRS also suggests using an electronic tax prep program. I’m sure they realize how intimidating these new rules are for most taxpayers, and the e-file programs can lessen the hassle and confusion. The program will ask questions about your health coverage, request the information from Form 1095-A (if applicable), and then use your income figures (and those of your dependents) to calculate your exemption, your shared responsibility payment, or your premium tax credit or repayment.
Be sure to assemble all your health insurance information and the income figures for yourself and everyone else in your household before you start work on this part of your tax return. And if your health coverage situation is particularly complicated, just get your records together and bring them to your tax preparer.
There is a whole new chapter in the 2015 Actor’s Tax Guide about the Affordable Care Act. It will be available soon!