What does ObamaCare mean to you from a Tax Perspective?

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The biggest change for Americans in 2014 was the implementation of the Affordable Care Act abbreviated as ACA and also known as Obamacare. This law changed the whole atmosphere of healthcare and health insurance. A huge reason that the law was passed was based on the fact that the Affordable Care Act is a federal tax. In 2014, you will begin to see a new Line 61 on your Form 1040. Line 61 will factor in a penalty tax if family health care coverage was not present during the full year or a portion of the year. The rest of the health care law changes will continue to phase in through 2016. In this article, we will explore the new changes in depth so you and your family know exactly what to expect.

Scenario 1: I enrolled in a health plan through my employer, private insurance, Medicare or Medicaid.

If you can include yourself in this scenario, then your taxes will not be affected because you have “minimum essential coverage”. Under the ACA the “individual shared responsibility provision” calls for each individual to have minimum essential coverage for each month of the year beginning in 2014. If you are covered by your employer, privately held insurance, Medicare, Medicard, CHIP, TRICARE and certain other coverage, you have met this mandate and are in the clear!

For those who were covered but for only part of the year, you are allowed one lapse in coverage which cannot exceed 3 consecutive months. This is done to allow for job gaps however this lapse is only allowed once during the year. For instance, if you did not have coverage for two months and then obtained coverage, but then lapsed again for another month later in the year, you are okay for the two months but will be penalized for the one month in the second lapse of coverage.

What eeCPA needs in Scenario 1:

You may receive a Form 1095-B or 1095-C in 2014 from your employer or insurer. If so, please provide the document to us with your other tax documents! Otherwise, you are good to go since Forms 1095-B and 1095-C are optional for 2014 (but required in 2015 and following years).

Scenario 2: I purchased a health plan through a Health Insurance Marketplace.

If you find yourself in Scenario 2, we will need to file a Form 8962 with your 2014 Tax Return.  Form 8962 calculates whether you are eligible to receive a Premium Tax Credit. This tax credit is unusual because you can choose to receive this credit (aka subsidy) during the year when you first obtained the health coverage through the Marketplace. When you initially applied for the insurance, you estimated your income to determine your eligibility. At the end of the year, you must file Form 8962 to make sure the subsidy matched your income and you may receive more credit or you may owe the government. For instance, if you overestimated your 2014 household income when you applied for the tax subsidy, you are eligible to receive the remainder of the subsidy in the form of a refundable credit when you file your tax returns. Or you may have underestimated your income and now you owe money back to the government! Because of this, it is important to report income and family size changes to the Marketplace throughout the year even after you received the coverage.

In Scenario 2, you will receive a Form 1095-A from the Marketplace which shows details of your insurance coverage including the effective date, amount of premium and the advance premium tax credit. This is required in 2014. It allows us to fill out Form 8962.

What is the premium tax credit based on? The premium tax credit is administered by Health and Human Services in the Marketplace and is primarily based on certain income limits. If your income is between 100%-400% of the Federal Poverty Line you will receive some credit and the amount of credit you receive differs by your family size. See below for the Income Limits.

 

  • Individual $11,490 – $45,960;
  • Family of Two $15,510 – $62,040;
  • Family of Four $23,550-$94,200

 

What eeCPA needs in Scenario 2:

If you find yourself in Scenario 2, you will receive Form 1095-A from the Health Insurance Marketplace. Please provide this form to eeCPA with your other tax documents.

Scenario 3: I don’t have health insurance.

If you did not have health insurance in 2014, you will be penalized unless you fall into one of the following exemption categories: Indian tribe membership, health sharing ministry membership, religious sect membership, incarceration, exempt non-citizen or economic hardship. You must go through a process to obtain the exemption and receive a certificate of exemption.

The tax penalty, aka “individual shared responsibility payment” is based on family size and income, and is prorated based on the number of months you are uninsured.

  • For 2014, the annual one-time tax penalty will be $95 per adult and $47.50 per child, or 1% of your household income, whichever is greater.
  • For 2015, the penalty is $325 per person and $162.50 per child, or 2% of your household income, whichever is greater.
  • For 2016, and all future years, the penalty is $695 per adult and $347.50 per child, or 2.5% of your household income, whichever is greater.

For those who were covered for part of the year, you are allowed one lapse in coverage which cannot exceed 3 consecutive months. See Scenario 1 for more information on this point.

What eeCPA needs in Scenario 3:

Please show us what months you did not have health insurance. If you are fully exempt, please show us your certificate of exemption.

For more questions, please visit the following websites or give us a call today to start preparing your tax return and we will gladly walk you through the new guidelines!

Informational Links:

IRS Q&A 

Healthcare.gov

ObamaCareFacts.com