3 Things to Know About Taxes and the ACA
The Affordable Care Act (ACA) has changed the way many Americans purchase health insurance, providing access to affordable healthcare for millions. But the new law also affects many Americans’ taxes. Even if you didn’t purchase health insurance from the government-run marketplaces, you may still experience some changes at tax time. Here are three key things to know about the ACA and your taxes:
Everyone Must Have Coverage, or Face a Fine This Year
Starting in tax year 2014, the Internal Revenue Service (IRS) says all Americans must have basic health insurance, otherwise known as minimum essential coverage, for themselves and any dependents, or face a fine. See the IRS’ “Minimum Essential Coverage” chart for a listing of qualifying plans.
If you or any dependents did not have the minimum essential coverage for at least three months in 2014, you could be fined the higher of the following two amounts, according to Healthcare.gov:
1 percent of your 2014 yearly household income. This is based on any income reported in your tax return that is above the tax filing threshold, which is generally $10,000 of annual income per individual. Only the income above the threshold is used to calculate the penalty.
$95 per person for the year (or $47.50 per child under 18), up to a maximum penalty per family of $285.
Any fines owed are calculated as part of your final tax bill when you fill out your tax return. Check out the Tax Policy Center’s calculator to help determine the approximate amount of any penalty you might face.
Know If You Qualified for an Exemption
If the thought of paying penalties for lack of coverage concerns you, consider whether you may qualify for an exemption. According to Healthcare.gov, these can include:
- Being uninsured for less than three months during 2014
- Not finding health insurance that costs less than 8 percent of your annual household income
- Not having to file taxes because your income was too low
- Several hardship exclusions, such experiencing a death in the immediate family; facing eviction; receiving a shut-off notice from a utility company; or filing for bankruptcy
Know What Tax Forms You’ll Need
Depending on your health insurance coverage in 2014, you may encounter the following changes to your tax forms this year:
If you obtained health insurance for all of 2014 from an outside source, such as a job, retirement plan, or Medicaid, you will not receive any new tax forms this year, says Healthcare.gov. Instead, you’ll just check a box on your usual tax form indicating you had outside coverage.
If you purchased health insurance under the ACA, you’ll receive tax form 1095A, which includes information about premiums you paid for the plan, along with any tax credit subsidies received, says Healthcare.gov. You’ll need this form to calculate your correct tax credit amount.
If you qualified for a “premium tax credit” subsidy when you applied for your ACA plan, and chose an “advance payment” applied immediately toward your monthly premiums, you’ll need IRS form 8962 to calculate whether the advance payment subsidy was too great or small – and if so, whether you’ll need to pay back the difference or receive a refund, says Marketplace.gov. Even if you didn’t qualify for a tax credit at the time, Marketplace.gov says you might want to fill out this form, anyhow, since you may qualify for a subsidy now.
If you did not have health coverage for three or more months in 2014, but believe you qualified for an exemption, you’ll fill out IRS form 8965 to apply for one, says Healthcare.gov.
If you did not have health coverage for three or more months during 2014 and do not qualify for an exemption, you will have to pay a fine when you file your taxes by indicating you did not have appropriate coverage on your tax form, says Healthcare.gov. No new tax forms are necessary. Fines will be calculated on the tax form and deducted from any refund to which you’re entitled, or added to any balance of taxes owed.
The ACA brings some significant changes at tax time for many Americans. You may want to consult with the IRS or a tax professional to ensure you’re fulfilling your new tax obligations.
Please note that Allstate Life Insurance Company or its agents and representatives cannot give legal or tax advice. The brief discussion of taxes on this page may not be complete or current. The laws and regulations are complex and subject to change. For complete details consult your attorney or tax advisor.