2014 is out of the way and tax season has gripped the country. This time, however, Americans have a new tax filing aspect to consider – the Affordable Care Act. This is the first year when the law requires everyone to have health insurance at the time of tax filing, unless they are exempt from the requirement. For most people, proving they have health insurance will be as simple as checking a box on the tax return, while others might have to show the proof that guarantees exemption from the law. In any case, this year’s tax filing requirement will be slightly different from last year, and this is what it will look like.
1) The basic change lies in reporting if you have health insurance. If you have an employer- sponsored health insurance, the employer will report the amount contributed toward health insurance on an employee’s W-2 form. In some cases, the employer or the health plan can issue a 1095-B or 1095-C Form to employees. Although these forms are not required in 2015’s tax filing cycle, it will be better to acquaint yourself with these forms before they become mandatory starting next year.
For people who purchase health insurance through the Marketplaces, the 1095-A Form will be issued. This form contains all the necessary information required at the time of tax filing, such as policy date, policy premium, and premium tax credits issued to the individual.
2) In case you were uninsured throughout the year, the first step is to check if you qualify for any kind of exemption from the ACA mandate of health insurance in 2014. Financial hardship is the most common reason for exemption from the requirement of having health insurance this year. In case your household income falls below tax filing threshold or you are a member of a tribe or religious group, you will be exempt from the mandate. If you were uninsured for less than three months in the year, you will be exempt from the mandate. There are some automated tools available online to check if you qualify for exemption. In case you do, you need to file for exemption before you file for taxes, as you require an Exemption Certificate Number that is issued to you if you qualify for exemption. The process can take a few weeks, so it is prudent to apply for this exemption in advance of the tax filing deadline.
3) If you don’t qualify for an exemption and still haven’t purchased insurance for more than three months, you will be penalized under the Affordable Care Act. This penalty will be affected at tax filing time, and the maximum penalty per fine can be $285, which is the national premium average for Bronze level plans under Obamacare. Generally, the penalty is calculated as one percent of the household income or as a flat fee of $95 for each adult and $47.50 for each child in the family, whichever works out to be higher.
4) If you have had health insurance for more than nine months in 2014, you will not have to pay any penalties while filing taxes. However, there still is another catch you need to consider. If you purchased your health plan from the federal marketplace and qualified for subsidies or premium tax credits, you will have to reconcile your actual household income with the projected household income that got you the subsidies. The subsidies and premium tax credits received by you will be evaluated according to your actual household income in 2014, and any gaps will be filled. In case you got more subsidies than you were eligible for, you would be required to pay them back while you file for taxes. In case your household income worked out to be lesser than your projected income, you will get a bigger tax refund while filing taxes.
As the tax season approaches, confusions from the new inclusions in the filing system might hinder smooth filing. This little guide will help you in making the basic decisions and going through the tax filing system with your ACA information handy for submission.