The Affordable Care Act
Insurance and taxes! Yes, your taxes may be affected by your health insurance, or lack there of. There are many things that have to be considered before your tax return can be completed. There are many things that you should be aware of. There are many things that I, as a tax professional, have to be informed on. The consequenses of the Affordable Care Act are one of these important things.
The Act goes into effect next year for companies, but it's this year for individuals. You have to have had qualifying coverage for yourself and your dependents to avoid the penalty tax. The coverage has to meet minimum federal requirements and can be purchased through an employer, a government exchange, or federal coverage such as Medicare.
If you didn't have health insurance at any point in 2013, you may have to pay a penalty. The penalty for 2014 is the higher of 2 amounts: $95 per adult/$47.50 per child (under 18) with a $285 maximum OR 1% of MAGI (modified adjusted gross income). There are some exceptions to the penalty, and you may qualify for one. If you do owe a penalty, the amount the IRS can get from you is limited to the refund (if any) that you have. They aren't able to "come after you" for any additional amount.
Certian individuals get a refundable tax credit to help off-set the cost of health insurance coverage. The credit is available for those whose income falls between $11,490 and $94,200 for a family of 4, and is based on filing status and other factors. The credit is not available to those who purchase insurance coverage through an employer plan.
UPDATE 1/6/15:
There are a lot of things to think about when it comes to the ACA. I will attempt to simplify the information here for you.
5 KEY POINTS
1. Do you have required minimum coverage?
Beginning in tax year 2014 you are required to have health insurance coverage for yourself and your dependents that meet the minimum coverage standards. You cannot have more than 3 months of the year without coverage or you pay a penalty called the "Shared Responsibility Payment". The penalty amount will vary depending on your circumstances.
For the most up-to-date information on individual health insurance requirements, go to https://www.healthcare.gov/.
2. Do you qualify for the Premium Tax Credit (PTC)?
Qualifying for the PTC is complex. If you buy insurance through a federal or state marketplace you may qualify for the PTC. Your income must be less than 400% of the federal poverty level. You can check your eligibilty at the website above. The current open enrollment for 2015 ends on February 15, 2015. You can only enroll through the marketplace after this date if you have a qualifying life event.
3. Did you get the PTC you actually qualified for?
If you got the PTC during 2014, you will receive a Form 1095-A from the insurance company, which you need to file your tax return. The amount of PTC you qualify for is initially estimated in the beginning of the year based on your projected income. At the end of the year calculations are done to determine if the amount of PTC you recieved throughout the year was correct based on your actual income. This will likely create one of 2 outcomes: you will pay additional taxes or you will get additional credit. It is unlikely that you will have received the exact amount you were supposed to get.
4. Is your Adjusted Gross Income (AGI) more than $200,000 ($125,000 MFS)?
You may owe Additional Medicare Tax (.9%) and/or Net Investment Income Tax (3.8%).
5. Are you covered by an employer plan, medicare or other government insurance, or private insurance purchased outside of the marketplace?
You will not be eligilble for the PTC, and as long as you were covered a minimum of 9 months of the year, you will not owe any penalty! You may be subject to # 4.
For information on the Small Employer Health Insurance Credit contact your tax consultant.