HOW THE AFFORDABLE CARE ACT (OBAMACARE) WILL AFFECT YOUR 2014 TAX RETURN
As many of you are now painfully aware through the media, The Affordable Care Act will bring some changes to the preparation of your 2014 individual tax return. These changes will come in one of three ways. Individuals will need to provide additional information when they file their 2014 federal income tax return, may have to complete one or two new tax forms, and may be liable to pay a fee with their tax return or obtain a health care coverage exemption.
For many individuals, the act will not impact their return greatly. If you had health coverage from your job, Medicare, Medicaid or from a plan purchased outside the government’s Health Insurance Marketplace you’ll simply report this by checking a box on your federal income tax return and won’t need to file any additional forms. If this isn’t the case, then your return will be more complex than in the past.
If you enrolled in a plan through the government’s Health Insurance Marketplace, you will receive a form 1095-A. That information will be put on form 8962 that will be filed with your 2014 federal income tax return. The Premium Tax Credit based on your income and family size for the year will then be compared to the advance credit payments that were received during the year. A taxpayer’s premium tax credit for the year typically will differ from the advanced credit payment amount that was estimated by the Marketplace because the taxpayer’s household income and/or family size were estimated at the time of enrollment. If the calculated Premium Tax Credit is more than the advance credit payments, this will result in an additional refund or a lower tax due with the return. Alternatively, if the advanced credit payment exceeds the calculated Premium Tax Credit, the result will be a lower tax refund or an additional amount due with the return.
For those that didn’t have health coverage for 2014, they will either have to claim a health coverage exemption or pay a fee with the return. The IRS has issued a partial list of exemptions that are available including not having any affordable health insurance plans available to you, having only a short gap in coverage, having household income less than the tax return filing threshold, and experiencing a hardship in obtaining insurance. There are also other less common exemptions. Anyone claiming an exemption will need to file form 8965. If an individual doesn’t qualify for an exemption, they will be required to pay a fee referred to as the individual shared responsibility payment. This fee will be the higher of $95 per person (with a maximum of $285 per family) or an amount that is generally 1% of their annual household income above the filing threshold ($10,500 for an individuals and $20,300 for a married couple filing jointly). The individual shared responsibility payment will increase significantly in 2015 to the higher of $325 per person (with a maximum of $975 per family) or an amount that is generally 2% of their annual household income above the filing threshold
For those that prepare their own returns, you should expect a bit more complexity if you purchased health coverage from the Marketplace or didn’t have coverage. For those that utilize a tax preparer, you should expect some additional questions with regards to your 2014 health insurance coverage and will need to provide your preparer a copy of any form 1095-A, B, or C that you may have received. You can also assume a higher tax preparation fee if you purchased health coverage from the Marketplace or didn’t have coverage, since this will require some additional time to prepare the necessary tax forms.
Dave is a CPA at Gamwell, Caputo, Kelsch & Co., PLCC in Conway, NH and can be reached at 603-447-3356. Dave welcomes any article feedback or questions for future article consideration.