2014 marks the year where the ACA (also known as ObamaCare) will affect your tax returns. As you know the ACA requires all of us to carry a minimum amount of healthcare coverage, whether you obtain it through an employer, or pay for it yourself through the marketplace at the healthcare.gov website. For those who have insurance through your employer there are really no worries, since they are required to furnish a health plan that meets the minimum requirements. If you obtained insurance through the marketplace however, there are several new compliance issues and forms to file.
The ACA marketplace will be sending you a new 1095A form which will give information as to how much coverage you bought, what months you were covered, and also any subsidies which you qualified for. It is very important that you give this form to your preparer, since your 2014 returns cannot be prepared without it!
The impact on your tax returns will be significant if you qualified for any subsidies. When you completed your application on healthcare.gov you were asked to estimate your 2014 income, and you were then told what amount of subsidy you qualified for. When we calculate you actual income for your tax return, this will higher or lower than you estimated. Your preparer will then compare and calculate if you will receive additional subsidies through your tax return as a Premium Tax Credit – or – if you will owe an additional amount back through a Repayment of Advance Premium. In either case the credit or payment will directly affect your total refund or amount due. (Please note that this will apply only if you chose to have the subsidy directly reduce your premium payment. If you chose to have the subsidy apply in full on your tax return, it will be calculated and included in your refund)
The other main issue with the ACA, concerns the Individual Shared Responsibility Provision, which is the penalty applied if you did not obtain the minimum health insurance coverage. The penalty for 2014 will be calculated as the GREATER of (1) 1% of your household income or (2) a flat dollar amount of $95 per adult and $47.50 per child.
Some details about this penalty:
* “household” Income is calculated by looking at all earned income, less your exemptions and standard deduction. This includes all income from all members of your family, including your dependent children.
* All members of your family (dependents) must have minimum coverage.
* You may qualify for an exemption, which is obtained through Health and Human Services. HHS will give you an exemption certificate with specific codes to enter on your tax return.
* If you have Medicare, Medicaid, or coverage through VA, you automatically have the minimum required coverage. The list of exemptions is too extensive to list here, so feel free to contact us, or you can find information here http://www.irs.gov/uac/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision.
* There are some provisions to limit these penalties, such a cap for the total amount of penalty, and allowances for up to a 3-month gap in coverage.
You may have additional questions about the new ACA laws and provisions, so please plan for additional time with your tax preparer this year. Please understand that if you call in with a question, we may not be able to answer your question immediately. We place our priority attention with our clients during their appointment, and may need to return your call later in the day.