The Affordable Care Act (ACA) or Obamacare, as it is commonly referred to, has some key tax reporting provisions for the 2014 tax filing season. Before reviewing how and if you have to report, let’s review some new terms:
- Minimum Essential Coverage (MEC): Basically this is any health plan that is recognized by the Department of Health and Human Services (HHS) that qualifies for Obamacare.
- Health Insurance Marketplace (Marketplace): Also commonly referred to as the “Exchange,” any government agency or non-profit that makes qualified health plans available to individuals.
- Premium Tax Credit (PTC): A tax credit for certain lower income individuals who enroll in a qualified health plan through the Marketplace and not eligible for other MEC. For income qualifications, you must have at least 100% but not more than 400% of the federal poverty line (FPL). To give you an example, a family of four would be phased out of the credit when their household income exceeds $94,200 for 2014.
- Shared Responsibility Payment (SRP): If a taxpayer or any person of the taxpayer’s household did not have an MEC or a qualified exemption, the taxpayer must compute the SRP. For 2014 it is the greater of $95 per adult and $47.50 per child; or 1% of household income that is above the tax return filing threshold.
While there are many more terms used in Obamacare, these are the major ones we will concentrate on for now.
If you had health insurance coverage all year, tax reporting for ACA will be simple – you simply will check the box on line 61 of the 1040 to verify that you had coverage all year and you’re done! However, if you didn’t have qualifying coverage all year, don’t qualify for an exemption or may have to reconcile a PTC, things could get a bit complicated.
Form 1095-A: If you purchased coverage through the Marketplace, you will receive a new form 1095-A, “Health Insurance Marketplace Statement”. This form reports to the IRS information about family members enrolled, the premium for health coverage provided, the premium for the second lowest cost silver plan that the Marketplace determines applies for family members enrolled, and any advance payment of the PTC. This form will be sent out by 01/31/15, and will be used so you are able to reconcile your credit computed on your tax return and any advance PTC credit received.
Form 1095-B: This form is not required to be submitted this year, but will be for 2015. Form 1095-B will be sent to the IRS by insurers, to report minimum essential coverage provided to a covered individual.
Form 8962: This form is used to claim the PTC or reconcile an advanced payment of the PTC, which is only offered if you purchased a plan through the Marketplace. The PTC is based on a sliding scale; so those taxpayers with lower incomes will receive a higher PTC. If you received an advance PTC and it is more that you qualify for, it will be added to your tax return as an additional amount of tax due.
Form 8965: This form will be used by taxpayers who did not have qualified health insurance the entire year, but qualify for a coverage exemption. There are quite a few exemptions. A couple of the more common, I think would be 1) short coverage gap – went without coverage for less than 3 consecutive months; 2) a US citizen living/working abroad for at least 330 days; 3) household income below the minimum threshold for having to file a tax return.
As you can see from the condensed summary I’ve described, Obamacare tax reporting can be complicated. Tax preparation software like TurboTax seems to do a good job of asking questions to correctly guide you to properly reporting credits, repayments or exemptions that may apply. However, if you are not comfortable or confused with the maze of forms and calculations, this may be a good year to hire a qualified tax professional to complete your return.
Speaking of tax preparation, if you file your own tax return, you may qualify for some of the free E-file offers for both Federal and Michigan state tax returns. To see if you qualify, go to www.michigan.gov/taxes and click on E-file under “Individuals” at bottom of page; then choose “e-File for FREE” to see the list of tax prep company offers – Good Luck!