Doing your taxes for 2014 will have some challenges and additional fees that will be incurred to process your income taxes that you may not be fully aware of. First thing to know is that you will need to provide your tax professional with your W2 and form 1095-A, if you purchased your health care coverage through The Health Insurance Marketplace. Both your employer and The Health Insurance Marketplace are required to mail your forms by January 31, 2015.
Ask your tax professional for an estimate of the additional filing fees to do your return this year. A simple return done prior will not be so simple this year. Most importantly, make sure you understand how the Affordable Care Act (ACA) will affect your income taxes.
The following information is excerpts from IRS publication 5187 you can find it here for more information.
Just in case you haven’t heard…
For each month of 2014, the individual shared responsibility provision calls for individuals to:
- Have qualifying health care coverage (also called minimum essential coverage), or
- Qualify for an exemption from coverage, or
- Make an individual shared responsibility payment when filing their federal income tax return
Individuals are treated as having minimum essential coverage for the month as long as the individuals are enrolled in and entitled to receive benefits under a plan or program identified as minimum essential coverage for at least one day during that month.
So, what does that mean who must have health essential coverage? In general, all U.S. taxpayers are subject to the individual shared responsibility provision. Under the provision, a taxpayer is potentially liable for him or herself, and for any individual the taxpayer could claim as a dependent for federal income tax purposes. Therefore, all children generally must have minimum essential coverage or qualify for a coverage exemption for each month in the year. Otherwise, the primary taxpayer(s) (e.g., parents) who can claim the child as a dependent for federal income tax purposes will generally owe an individual shared responsibility payment for the child.
Senior citizens must also have minimum essential coverage or qualify for a coverage exemption for each month in the year. Both Medicare Part A and Medicare Part C (also known as Medicare Advantage) are minimum essential
How will taxpayers report minimum essential coverage?
Taxpayers whose entire tax household had minimum essential coverage for each month of their tax year will indicate this on their federal income tax return by simply checking a box on their Form 1040, 1040A or 1040EZ. No further action is required.
What is the individual shared responsibility payment?
If anyone in the taxpayer’s tax household does not have minimum essential coverage, and does not qualify for a coverage exemption, the taxpayer will need to make an individual shared responsibility payment (SRP) when filing their federal income tax return.
The annual SRP amount is the greater of a percentage of household income or a flat dollar amount, but is capped at the national average premium for a bronze level qualified health plan available through the Marketplace that would cover everyone in the tax household who does not have coverage and does not qualify for a coverage exemption.
For 2014, the annual SRP amount is the greater of
- 1 percent of the household income that is above the tax return filing threshold for the taxpayer’s filing status, or
- The family’s flat dollar amount, which is $95 per adult and $47.50 per child (under age 18), limited to a family maximum of $285.
Here are a couple of examples:
Single individual with $40,000 income:
Jim, an unmarried adult with no dependents, did not have minimum essential coverage for any month during 2014 and does not qualify for a coverage exemption. For 2014, Jim’s household income was $40,000 and his filing threshold is $10,150.
To determine his payment using the income formula, subtract $10,150 (filing threshold) from $40,000 (2014 household income). The result is $29,850. One percent of $29,850 equals $298.50. Jim’s flat dollar amount is $95.
Because $298.50 is greater than $95 (and is less than the national average premium for bronze level coverage for 2014), Jim’s shared responsibility payment for 2014 is $298.50, or $24.87 for each month he is uninsured (1/12 of $298.50 equals $24.87).
Jim will make his shared responsibility payment for the months he was uninsured when he files his 2014 income tax return.
Married couple with 2 children, $70,000 income:
Eduardo and Julia are married and have two children under 18. They did not have minimum essential coverage for any family member for any month during 2014 and no one in the family qualifies for a coverage exemption. For 2014, their household income was $70,000 and their filing threshold is $20,300.
To determine their payment using the income formula, subtract $20,300 (filing threshold) from $70,000 (2014 household income). The result is $49,700. One percent of $49,700 equals $497.
Eduardo and Julia’s flat dollar amount is $285, or $95 per adult and $47.50 per child.
Because $497 is greater than $285 (and is less than the national average premium for bronze level coverage for 2014), Eduardo and Julia’s shared responsibility payment is $497 for 2014, or $41.41 per month for each month the family was uninsured (1/12 of $497 equals $41.41).
Here are the new forms that may be used in addition to prepare your return.
- Form 1095-A, Health Insurance Marketplace Statement – Taxpayers who purchased qualified health plans from the will receive Form 1095-A.
- Form 8962, Premium Tax Credit, & Instructions – If a taxpayer or a member of thetaxpayer’s family enrolled in a qualified health plan through the Marketplace, the taxpayer must reconcile any advance credit payments with their actual premium tax credit on Form 8962, Premium Tax Credit. If excess advance credit payments were made on a taxpayer’s behalf, the taxpayer will enter the excess advance credit payments on their tax return and repay the excess when they file their federal income tax return.
- Form 8965, Health Coverage Exemptions & Instructions – Taxpayers who did not maintain minimum essential coverage for each month of their tax year may claim a coverage exemption. Form 8965, Health Coverage Exemptions must be used to claim exemptions or report exemptions granted by the Marketplace. Taxpayers should use the worksheets located in the instructions to Form 8965 to calculate the individual shared responsibility payment amount due. The shared responsibility payment amount due is reported on Form 1040, line 61 in the Other Taxes section, and on the corresponding lines on Form 1040A, and 1040EZ.