Beginning this tax season, you may notice some changes on your tax return related to the Affordable Care Act, commonly referred to as just ACA or Obamacare.
We’ve created the following guide to help inform you of potential changes, and to ensure that you understand how the ACA might impact your tax situation this year. In this guide, you’ll find specific information around (a) how the ACA might affect your taxes, (b) which new forms you’ll need to look for, and (c) what documentation we’ll need from you in order to complete your tax return.
To begin, find the description that best represents your current situation.
You’re all set! All you will need to do is indicate that you have minimum essential coverage, a general term that includes individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE and certain other coverage. For a full list of qualifying plan types, visit www.healthcare.gov/fees-exemptions/plans-that-count-as-coverage/.
To get started, just let us know that you purchased your plan through Covered California, also known as a health exchange.
Did you receive a government subsidy in the form of a tax credit to purchase health insurance through the online Health Insurance Marketplace?
Unlike most tax credits, this tax credit or subsidy could be applied to insurance premiums throughout 2014 when your coverage began. Whether or not you choose to receive this subsidy during the year, we are required to reconcile your credit on your tax return at year end.
If you overestimated your 2014 household income when you applied for the tax subsidy, you will receive the remainder of the subsidy in the form of a refundable credit, which will increase the refund amount or decrease the amount owed on your tax return. But if you earn more than you projected, you will have to pay a portion or all of the subsidy back, which will decrease the refund amount or increase the amount owed on your tax return.
In addition to a change in income, make sure to report all life changes (i.e. getting married or having a child) through your Marketplace to ensure your subsidy is correct.
Under the ACA, individuals who did not have health insurance for more than three months in 2014 must pay a tax penalty. However, according to Congressional Budget Office, an estimated 20 million Americans may qualify to waive that penalty this year. To find out if you qualify for an exemption, review the material below.
How do I know if I qualify for an exemption?
The Affordable Care Act recognizes there are legitimate reasons people may be exempt from paying a tax penalty for not having health insurance.
Some of the common exemption reasons include:
For the full list of exemptions, please check www.healthcare.gov/fees-exemptions/exemptions-from-the-fee/
If you’ve been uninsured for fewer than three consecutive months of the year, you don’t need to apply for an exemption. This will be handled when we file your taxes. Also, if you are not required to file a tax return because your income is too low, you don’t need to apply for an exemption.
If you believe you qualify for one of the exemptions, please notify us as soon as possible, so we will be able to let you know whether you can claim it on your tax return or apply through the Health Insurance Marketplace along with the required documentation in certain cases. Different exemptions require different forms, so be sure to apply with the correct document. You can find and print all of the forms at healthcare.gov/exemptions.
For those exemptions that should be filed through the Health Insurance Marketplace, the approval process can take a couple of weeks, so don’t wait until we file your taxes to apply for an exemption. Instead, submit your application as soon as possible. That way, it will be documented and processed in time, and we can file your tax return as soon as the IRS begins accepting returns in January.
What if I’m not exempt?
If you don’t have health insurance and don’t qualify for an exemption, you will have to pay a penalty when you file for your 2014 tax return. If that’s the case, don’t worry: We will help you calculate the exact amount of your tax penalty and work to identify any qualifying deductions that may help offset this fee.
The tax penalty, also referred to as the “individual shared responsibility payment”, is based on your family size and income. The penalty will be prorated based on the number of months you are uninsured and will increase each year.
For tax year 2014, the annual one-time tax penalty will be $95 per adult, or one percent of your total income, whichever is greater. For uninsured children in your family, the penalty is $47.50 per child, with a family maximum of $285 for the year. The tax penalty is assessed on your 2014 tax return.
Each year following 2014, the penalty increases — in 2015 the penalty is $325 per person, $162.50 per child — or two percent of your income. By 2016, the penalty rises to $695 per adult, $347.50 per child — or 2.5 percent of your household income.
We know that the tax filing process can sometimes be overwhelming and that the Affordable Care Act could potentially further complicate the process. Please know that we are here to help you navigate these changes.