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The Affordable Care Act and Your Individual Tax Return

The Affordable Care Act (ACA) was signed into law on March 23, 2010. The primary goal was to reduce the overall cost of health care, while ensuring quality of care by reducing the gaps and aligning financial incentives among physicians, hospitals, and other health care services providers. These incentives are based on quality, efficiency, and expense control.

Beginning with the 2014 tax year, tax payers may have some extra forms to complete when completing their 2014 Federal Income Tax Returns. It is estimated that 75% of individuals and families will simply be able to click a box showing that they had non-marketplace heath care coverage for all of 2014. These include:

• Most job-based plans, including retiree plans and COBRA coverage
• Medicare Part A or Part C
• Medicaid
• The Children’s Health Insurance Program (CHIP). 
• Most individual plans purchased outside the Marketplace, including “grandfathered” plans. However, not all plans outside the Marketplace qualify as “minimum essential coverage”
• VA or TRICARE

For individuals and families who had a health plan through the Health Insurance Marketplace (Marketplace), there is additional effort that is required. To help with the tax filing process, all Marketplace consumers will receive a Form 1095-A, which is a new statement. In many states, this form can also be downloaded. As with any new form, you will want to review the form for accuracy. It is important to wait until you receive your Form 1095-A before filing your taxes. It includes all of the information you will need about your coverage in order to file your return.

There are, however, some additional forms that will need to be completed and filed with your return. It can be overwhelming for some, who may want some guidance from a professional. Here are some additional basics:

If a tax credit lowered your monthly premiums for health insurance coverage in 2014, you will use the information from your Form 1095-A to enter into these forms when preparing your taxes. You had estimated your household income when applying for your credit. You will need to compare your estimate with your actuals. If there was a change in household income or household size, your tax credit may be impacted. Your refund may be less, or more, or you may owe.

If your coverage from the Marketplace began partway through 2014 and you were uninsured earlier in the year, or if you were uninsured for only a short period of time during 2014, you may be eligible for an exemption from the requirement to have health coverage.

For individuals and families that did not have health coverage in 2014, who could afford coverage, but chose not to and you don’t qualify for an exemption, you may have to pay a fine. The fee is based on your income and the number of months in which you did not have coverage. If you didn’t have health coverage for all of 2014, you will pay the higher of $95 per adult and $47.50 per child, who didn’t have coverage, limited to a family maximum of $285, or 1% of your income, subject to certain caps.

Individuals and families that could not afford coverage or met other conditions can receive an exemption. If you qualify, you need to take the necessary steps to request the exemption. A couple of the exemptions available are 1) The cost of the coverage was too expensive and 2) You experienced a hardship.

Now, this is a lot to digest, but it is now part of what we have to do. Only time will tell if the benefits outweigh the costs.

-Michael Hermanson, CPA | CGMA