Completing your tax return this year will be harder for most due to the requirements of the ACA. For the majority of Americans, the process will only require minor changes that can be covered by simply a checkmark on the filing form, nothing more. For others, however, health insurance reporting will require a whole range of forms that cover their insurance coverage status, Premium Tax Credits and reconciliation of availed tax credits with their actual annual income.
Things will be even more convoluted for people who did not have minimum essential coverage for the year. These people will be required to pay penalties under the new setup. Even then, there is a range of conditions attached to what qualifies as ‘minimum essential coverage.
With all these variables, it gets a little hard to move through the process. For ease, I am listing below the 3 paths that checks all Obamacare requirements in your tax filing and guides you through the confusion.
This is the simplest path and, fortunately, applies to nearly 80 percent. If you and each member of your family had health insurance throughout the year, then you simply need to check the box titled ‘Full-year coverage’ in one of 1040A, 1040Z, and 1040EZ forms. That’s it. You do not even have to include any proof of insurance as the government should be able to pull that from your records. Done and dusted.
This is where it gets trickier. For the 6% of people who bought health insurance off of a marketplace, there are a couple of things to check. File the 8962 form, show the Premium Tax Credits you qualify for according to your annual income and reconcile this number with the tax credits paid toward their health plan in the course of the year. Once you have done that, there are two forks in this path. The first fork will come into play when you made less money than projected or had a life event, such as the addition of a new member to your family, marriage, etc. In that case, entitled premium tax credits will be more than the advance payments made to your health plan, and you will receive the remaining amount as a tax refund.
The second alternative path comes into action when you had more income or fewer family members as noted at the beginning of the year. In that case, you might have to pay some of those tax credits back to the government in your tax filing. For both these alternate sub-paths, you need to use the 8962 form for reconciliation.
This is where the penalties come into the picture. If you or any of your dependents did not have health insurance for each month of the year, you will be required to pay penalties. Unless you are exempt from the health insurance penalty, you will have to pay according to the slab you fit in. The penalty ranges from $95 per uninsured adult to $2,448 per uninsured adult, depending upon the family income. On the other hand, if you qualify for exemptions, then you need to have an Exemption Certificate Number that you can submit along with your tax filing.
The ECN has its own share of formalities and processes, and you need to have it handy for completing the filing process. An ECN is available from the marketplace that issued the exemption and is a mandatory document for completing the exemption formalities. This path is the most convoluted of all, with Form 8965 requiring myriad proofs and documents to process your penalties or exemptions.
Among these three paths, you will find that at least one of these leads to complete tax filing. While Path 1 is pretty straightforward, Path 2 and Path 3 can confuse the most seasoned of tax payers. If you are stuck with either second or third, it makes sense to take the help of tax consultants who can help you with forms, procedures, alternatives, and more.