The Affordable Care Act – How does it impact my 2014 tax return?
Beginning in 2014 individuals and their dependents are required to have health insurance as a result of the Patient Protection and Affordable Care Act. If you (and your entire family, if applicable) had health insurance the entire year there will be little impact on your tax return. This would be the case if you had your health insurance through your employer or purchased an insurance policy directly from an insurance company without involvement of the marketplace exchange. If you had insurance for most of the year, but had a short coverage gap (less than three months) you will be required to disclose this fact on your tax return.
If you bought your insurance through the Marketplace you might be eligible for a Premium Tax Credit to help you pay for part of the cost of the coverage, which will require an additional form for your 2014 tax return that you have not had before. The needed information to prepare this form will be reported to you and the IRS on Form 1095-A Health Insurance Marketplace Statement and will need to be provided to whoever will be preparing your tax return. This form could represent either additional money coming back to you via your refund or the need to pay additional money (or receive a smaller refund) if you were advanced a larger amount for the premium tax credit than you were ultimately eligible to receive. Usually when you sign up for insurance on the Marketplace the anticipated amount of the premium tax credit is advanced to you in the form of lower monthly premiums. This is calculated based on estimates of expected household income for the coming year, which like any estimate may or may not end up being close to what actually happens.
If you (or any member of your family) did not have health insurance for 2014 there is a good chance you will end up needing to pay a shared responsibility payment. Before computing this however you will need to determine whether or not an exemption from having insurance and/or paying a shared responsibility payment may be applicable. There are 20 possible exemptions from the shared responsibility payment. Six of these exemptions would have had to be obtained from the Marketplace previously and you would have been issued an Exemption Certificate which will have an Exemption Certificate Number that needs to be shown on your tax return. The list of exemptions can be found online at the IRS website here.
If you did not have health insurance and do not qualify for an exemption the shared responsibility payment will need to be computed. For 2014 the payment is 1% of household income (not just adjusted gross income, it also includes the incomes of all dependents required to file tax returns) above the tax return filing threshold, but not less than $95 per adult up to $285 for a family. This is however capped at the cost of the national average premium for a bronze level health plan available through the Marketplace. For 2014 these amounts were announced by the IRS in Rev. Proc 2014-46 as being $204 per month per individual ($2,448 per year per person).
Here are calculation examples right from the IRS’ own guidance:
Single Individual $40,000 income no dependents, does not have insurance or qualify for any exemption
- Household Income : $40,000
- Single – Tax Filing Threshold: $10,150
- Amount over threshold: $29,850
- 1% Shared Responsibility Payment: $298.50
As this is more than the $95 minimum flat dollar amount and less than the $2,448 average cost of bronze level coverage, this person’s shared responsibility payment (i.e. penalty) is $299.
Married Couple, $70,000 income, 2 children, no insurance or exemptions
- Household Income : $70,000
- MFJ – Tax Filing Threshold: $20,300
- Amount over threshold: $49,700
- 1% Shared Responsibility Payment: $497.00
As this is more than the $285 minimum flat dollar amount and less than the $9,792 average cost of bronze level coverage this couple’s shared responsibility payment (i.e. penalty) is $497.
Unlike income taxes, other federal taxes and associated penalty and interest charges the shared responsibility payment cannot be collected using most of the usual collection methods. The IRS is not allowed to use liens or levies to collect this payment. This is expressly provided for in IRC Section 5000A(g)(2). Currently the only collection method available to the IRS by law is to reduce a taxpayer’s refund. If there is no refund there is no immediate way for the IRS to collect the money. However if a taxpayer does not pay they will have to ensure that their future withholding is such that they will not be getting refunds in the future. The IRS has a collection statue of limitations of 10 years.
For more information please email or call Keith Orr at 847-695-2700 or Keith.Orr@tkocpa.com.