This is the first tax season that will be impacted by the Affordable Care Act’s premium subsidy and penalty for not having health insurance. This post will provide an overview of what to expect over the next few months. I have included links to prior blog posts about specific aspects of the Affordable Care Act.
The Challenge for this Tax Season
Beginning with 2014 tax returns, individuals must prove that they had qualifying health insurance for each month of the year. Providers of health insurance coverage will be required to report health insurance information to individuals so they have proof of coverage for each month of the year. The challenge for the 2014 coverage year is that only individuals who purchased coverage through the health insurance exchange will receive Form 1095-A that reports to them the months they had coverage, who in their family had coverage, and the amount of any premium assistance credit they received during the year. Other health insurance providers (e.g., employers) are not required to provide this information for the 2014 year—they will be required to report this information on Form 1095 beginning with the 2015 coverage year.
Reconciling the Premium Assistance Credit
During 2014, qualifying individuals received the Premium Assistance Credit based on estimated 2014 income they provided last year when they applied for coverage. Now that their 2014 income is known, they will reconcile the Premium Assistance Credit received based on estimated income with their actual income. They will be required to either refund any excess credit (actual income higher than estimated), or may be entitled to an additional credit (actual income lower than expected). The amount of credit required to be paid back to the government may be limited. The reconciliation is done on Form 8962.
The Penalty for Not Having Health Insurance
Individuals who did not have health insurance for each month of the year will be subject to the Shared Responsibility Penalty. There are a number of exemptions an individual may qualify for that allows her to avoid the penalty. These exemptions are claimed on Form 8965. However, individuals are required to apply for certain exemptions directly from the exchange (and before they file their tax return).
As mentioned above, only individuals who purchased coverage through an exchange will receive a Form 1095-A that establishes the months they had qualifying coverage. All other individuals must maintain their own proof of coverage (e.g., monthly health insurance statements, employer summary plan descriptions, etc.) While the IRS cannot enforce the Shared Responsibility Penalty by lien or levy, they can reduce an individual’s refund by the amount of the penalty and/or send tax notices to individuals. Neither situation will be pleasing.
There’s Always Next Year…
Beginning with the 2015 coverage year (relevant to next tax season), applicable large employers who are required to provide health insurance to their employers will issue Form 1095-C . Other employers will report health insurance information to their employers via Form 1095-B.
If you have questions about how this applies to you, please contact us.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.