Your Taxes and The Affordable Care Act

This year, income tax time can become quite a headache if you’re not familiar with the health insurance requirements. The Affordable Care Act, also called Obamacare, affects just about every American at tax time. This is due to a mandate that requires every taxpayer to have health insurance, along with a subsidy to help lower the cost of monthly insurance premiums.

Before you panic about filing your return, you should know that the IRS states that 80% of taxpayers won’t notice the impact. However, some may experience a large effect when it comes to their refund or tax bill. In order to determine whether or not you will notice a big change at tax time, you first need to determine your health care coverage status.

  • Employer or Government Coverage: Taxpayers who receive health care coverage from their employer or from a government program such as Medicaid or Medicare won’t notice much of a change. There’s one extra line on the Form 1040 that you have to check to indicate you have health coverage. This applies to approximately 8 of every 10 Americans.
  • Marketplace Coverage and Tax Credit: Those who purchased an insurance plan through the Marketplace and opted to use the premium tax credit to offset the cost of monthly premiums will receive a new tax form, 1095-A Health Insurance Marketplace Statement. You will need to reconcile the credit you received in advance with the amount of the credit you are actually entitled to, using Form 8962. If the amount is different, you will either owe money or you will receive money.
  • Direct Coverage and No Subsidy: Some taxpayers purchased health coverage directly from an insurance company, and some may have opted not to use the subsidy when purchasing a Marketplace plan. Coverage direct from an insurance company requires taxpayers to just check line 61 of the Form 1040. Unsubsidized plans have an additional step, requiring the information from a 1095-A statement to be copied onto the Form 8962, as well as line 61. You may be entitled to a tax credit even if you didn’t use the Obamacare subsidy, provide you earned less than four times the national poverty level. Tax credits are only available for those who obtain coverage through the exchange.
  • No Coverage: Americans who don’t have health insurance for more than three months may be subject to a penalty. The penalty equation can be complicated, but it ranges between $95 and $11,000. If your yearly earnings were less than $10,150 as a single person, you aren’t required to pay taxes, and therefore you don’t have to have health insurance.

Every rule is made to be broken, which is why there are many exemptions to the Affordable Care Act. The thing to remember is that most exemptions have to be applied for, either through the IRS or the exchange directly. Form 8965 is used to claim exemptions form the ACA, which can include religious reasons, hardship, cancellation of insurance, or other issues.