The health insurance requirements of the Affordable Care Act started in 2014 and this post is the third of three articles which will outline what most taxpayers will need to know to be compliant for 2014.
If the taxpayer doesn’t have health insurance coverage for the full year, they might be subject to a penalty. The Individual Shared Responsibility Provision (ISRP) provision of the Affordable Care Act (ACA) means that everyone must have minimum essential coverage health insurance in 2014. Before you panic, you might also be eligible for an exception from that requirement. Some of the exceptions can simply be claimed on your tax return but others will need to be applied for through the Health Insurance Marketplace (HIM). If the exemption requires you to go through the HIM, they will give you a certificate number that your tax professional will need for your tax return. Also, if you used the HIM to purchase coverage, you will receive Form 1095-A that will give your tax pro most of the extra info they will need. All this will be used on Form 8965- Health Coverage Exemptions and several worksheets to calculate any penalty.
Exemptions (partial list)
- HIM Certificate
- Certain Religious Sects
- Some Hardship Exemptions (these require documentation to be supplied)
- Short Gap in Coverage (less than 3 consecutive months with no insurance)
- Can’t Afford Coverage (premiums are more than 8% of your household income)
- Not Required to File (your income is less than your tax filing requirements)
- Either IRS or HIM
- In Jail
- Member of Certain Native American Tribes
- Member of Certain Ministries
If you did not have coverage for the full year, your tax pro will need to know what coverage you did have for which months. This includes how much you paid for health insurance for each month of the year. This information is also needed for any dependents that did not have coverage for the full year. Please keep each person’s information separate.
Form 8965 documents who in your family had insurance and for which months. If they qualified for an exemption to having coverage, the exemption is listed on this form. The calculations for the penalty are figured on worksheets not on the form.
The penalty for not having minimum essential coverage begins with the household income. For these calculations, household income is the adjusted gross income on the return plus any tax-exempt interest or tax-exempt foreign income. It also includes the same income for any dependents claimed on your return and required to file a tax return. It does not include non-taxable Social Security or RailRoad Tier I benefits like the PTC calculations do. Once the household income is computed, the filing threshold is subtracted. The filing threshold is the sum of the standard deduction for the filing status claimed on the return, the exemptions for primary taxpayer and spouse if filing married filing joint and any additional amount for age or blindness. A single 35 year old taxpayer with $35,000 total income would subtract their filing threshold of $10,150 (single standard deduction and one exemption). The next step is to take the remainder times 1% (in the example, $24,850 * 1% for $248.50). Meanwhile, a second calculation is made adding $95 for each adult and $47.50 for each child on the return. The higher of the two figures becomes the penalty. The single filer will have a penalty of $248.50 since the percentage calculation is higher that the set $95 for one adult on the return. There is a cap on the amount of the penalty. It can’t be higher than the average Bronze Level plan through the Health Insurance Marketplace. For 2014, the cap is $2,448. The amount of the ISRP penalty is carried to the return (1040 – line 61, 1040A – line 38, 1040EZ- line 11) and added to the income tax.
If you had minimum essential coverage for the whole year for everyone on the return, you just need to mark the checkbox on the above lines and there is no need for Form 8965.
The Affordable Care Act is in effect and hopefully these three articles have given you an overview of what you will need to prepare your 2014 tax returns. Unfortunately, there are special situations which might affect your return. I can’t cover every possibility and variation. If you have any questions, talk to your tax pro.