There’s no doubt about it. The Affordable Care Act (ACA) has created the biggest change to the tax code in 20 years. That means a lot of headaches for a lot of people about how to handle health insurance and comply with the new tax rules surrounding the law. Here’s the scoop on three things that affect everyone’s taxes: Minimum Essential Coverage, Individual Shared Responsibility Payment, and the Premium Tax Credit.
Minimum Essential Coverage: Fortunately, 75 – 80% of taxpayers will simply check a box on their 1040 claiming that they – and their dependents – had qualified health insurance (also known as minimum essential coverage) for all 12 months of 2014. If you had health insurance through your employer, Medicare Part A, CHIP or purchased directly from an insurance company, you’re probably good to go.
If you are one of the 25 – 30 million who weren’t covered by a qualified plan during 2014 or if bought insurance through the federal marketplace, you’ll need to fill out some new forms, and you may have to make an Individual Shared Responsibility Payment (sometimes called a penalty or fee) when you file your tax return. For 2014, the shared responsibility payment is $95/adult and $47.50/child or 1% of your household income that is above your filing threshold, whichever is greater. You will need to calculate your payment using these worksheets.
The ACA allows for exemptions to coverage based on certain religious beliefs, hardships, income levels, etc. Some exemptions must be granted by the IRS or by the federal health care marketplace prior to filing your taxes, and all must be reported using Form 8965.
Premium Tax Credit: If you had coverage through the federal marketplace and took an advance premium credit (you know, that subsidy that made it more affordable to pay your monthly premiums), you may owe more tax or get a smaller refund when you file your return. Be sure to use Form 1095-A (sent to you by the marketplace) and Form 8962 to calculate what you really owe. Your CPA can help you make sense of it all and reduce your chance of getting a headache over the ACA tax rules.