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Tax & Assurance Guidance

What do I need to know about the Affordable Care Act to file my 2014 taxes?

Posted on January 28, 2015 by

Margaret Amsden

Margaret Amsden

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The Affordable Care Act (“ACA”) creates the Health Insurance Marketplace, also known as the Marketplace or the Exchange. The Marketplace is where taxpayers go to:

  • find information about health insurance options,
  • purchase qualified health plans, and
  • if eligible, obtain help paying premiums and out-of-pocket costs.

If a taxpayer purchased a qualified health plan through the Marketplace, they may qualify for the premium tax credit.

The ACA also includes the individual shared responsibility provision which requires individuals:

  • to have qualifying health care coverage (i.e., minimum essential coverage) for each month of the year,
  • to qualify for a coverage exemption, or
  • make a shared responsibility payment when filing their federal income tax return.

If taxpayers and their dependents had minimum essential coverage for each month of the year, they will simply check a box indicating this when filing their federal income tax return. No further action will be required. Taxpayers or any dependents who did not maintain minimum essential coverage for each month of their tax year and did not qualify for a coverage exemption must make an individual shared responsibility payment with their federal tax return.

Taxpayers who are exempt from the coverage requirement are not subject to the shared responsibility payment when filing a federal income tax return. Coverage exemptions are available for individuals specifically described as having:

  • a religious,
  • economic, or
  • other justification for not having minimum essential coverage.

Taxpayers who qualify for an exemption will attach a Form 8965, Health Coverage Exemptions, to their federal income tax return to claim that exemption.

Reporting Minimum Essential Coverage

Taxpayers whose entire tax household had minimum essential coverage for each month of their tax year will indicate this on their federal income tax return by simply checking a box on their Form 1040, 1040A or 1040EZ. No further action is required. On Form 1040, the box is located on Page 2, Line 61.

Health Coverage Exemption

There is a long list of health coverage exemptions. A few of these are:

  • Unaffordable coverage: the amount the taxpayer would have paid for the lowest cost employer-sponsored coverage available or for coverage through the Marketplace is more than 8% of the taxpayer’s household income for the year.
  • Short coverage gap: the taxpayer went without coverage for less than 3. consecutive months during the year.
  • Household income below the return filing threshold.
  • Certain noncitizens: the taxpayer was neither a US citizen, US national, nor an alien lawfully present in the US.

There are also certain hardship exemptions. How an exemption is qualified for and reported depends on the type of exemption. Some are granted only by the Marketplace, others are claimed only on the tax return, and some may be obtained either way.

The health coverage exemption is claimed by completing Form 8965 and attaching it to Form 1040. Exemptions that can only be granted by the Marketplace should be submitted as soon as possible so the taxpayer can properly report the exemption on their federal income tax return. Taxpayers who receive coverage exemptions from the Marketplace will receive an Exemption Certificate Number (“ECN”) and report this on Form 8965.

What is the Shared Responsibility payment?

If anyone in the taxpayer’s tax household does not have minimum essential coverage, and does not qualify for a coverage exemption, the taxpayer will need to make an individual shared responsibility payment (“SRP”) when filing their federal income tax return.

The annual SRP amount is the greater of a percentage of household income or a flat dollar amount, but is capped at the national average premium for a bronze level qualified health plan available through the Marketplace that would cover everyone in the tax household who does not have coverage and does not qualify for a coverage exemption. Taxpayers owe 1/12th of the annual SRP for each month they or their dependent(s) do not have coverage and do not qualify for a coverage exemption. For 2014, the annual SRP amount is the greater of:

  • 1% of the household income that is above the tax return filing threshold for the taxpayer’s filing status, or
  • The family’s flat dollar amount, which is $95 per adult and $47.50 per child (under age 18), limited to a family maximum of $285.

Example

John and Julia are married, have two children under 18, and an annual income of $70,000. They did not have minimum essential coverage for any family member for any month during 2014 and no one in the family qualifies for a coverage exemption. For 2014, their household income was $70,000 and their filing threshold is $20,300.

  • Income formula: subtract $20,300 (filing threshold) from $70,000 (2014 household income). The result is $49,700. One percent of $49,700 equals $497.
  • Flat dollar amount is $285, or $95 per adult and $47.50 per child.
  • Because $497 is greater than $285, John and Julia’s shared responsibility payment for 2014 is $497.

The percentage used in the income formula is indexed during the first three years (1% 2014; 2% 2015, and 2.5% for 2016). The Flat dollar amounts are also indexed ($325 per adult/$162.50 per child in 2015 and $695 per adult/$347.50 per child in 2016). After 2016, these amounts are indexed with inflation.

Premium Tax Credits and Advanced Payments

Taxpayers who purchased insurance from the Marketplace may be eligible for the premium tax credit (“PTC”). When enrolling in the Marketplace, taxpayers choose to have some or all of the credit paid in advance to the insurance company, essentially reducing their out of pocket premium cost. Taxpayers must file a tax return to either claim the credit (if they didn’t have it all applied to their premium) or to reconcile their advance credit to what they actually qualify for. The PTC is claimed on Form 8962.

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Margaret Amsden

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Margaret leads the firm’s private client services group as the point person for individual, estate and succession planning tax strategies.

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