The Affordable Care Act and Your Tax Return

Posted by Jorge Guerrero, CPA

Affordable Care Act - Delaware Tax Planning

It’s tax time!  This means it’s now time to report your compliance (or lack of compliance) of the Affordable Care Act to the IRS.   If you and every member of your household had health insurance coverage the entire year, compliance is as simple as checking the box on line 61 of Form 1040 (line 38 of Form 1040-A, or line 11 of Form 1040-EZ). On the other hand, if you enrolled in health insurance through the Marketplace or did not have health insurance for all or part of the year, your reporting to the IRS is a bit more complicated.

First, if you enrolled in health insurance through the Marketplace, you should receive a Form 1095-A Health Insurance Marketplace Statement from the Marketplace showing the benefit received from advance payments of the premium tax credit in 2015. You must then file a tax return before April 18, 2016 and reconcile the advance payments with the amount of the premium tax credit allowed on your return. This reconciliation is done using IRS Form 8962 Premium Tax Credit (PTC) and confirms to the IRS that you received the credit you were entitled.  If you received too much, you will have to repay the amount overpaid back to the IRS.  This is accomplished by reporting the information on line 46 Form 1040 or line 29 of Form1040-A (Form 1040-EZ cannot be filed). It is very important that you contact the state or federal Marketplace through which you enrolled if did not receive a Form 1095-A, Healthcare Insurance Marketplace Statement for this reason.  Failure to comply will result in penalties but the IRS offers abatement in certain situations.

Keep in mind that if you are claiming the premium tax credit and did not benefit from advance payments of the premium tax credit, you still must file a tax return and IRS Form 8962, Premium Tax Credit (PTC).

For taxpayers who did not have health coverage in 2015, there are a few exceptions to enable them to avoid paying penalties for noncompliance. The taxpayer will have to complete Form 8965, Health Coverage Exemptions, and submit it with their tax return. This option is available to those who are able to obtain a religious conscience exemption or a hardship exemption which can only be granted by the Marketplace.  The taxpayer should file an application with the Marketplace and follow the instructions about how to report exemptions from the Marketplace on his tax return. If the exemption is approved, from the Marketplace you will receive a unique Exemption Certificate Number. The Exemption Certificate Number will then be entered in Part I of Form 8965, Health Coverage Exemptions, and then submitted with your return.

If you applied for an exemption from the Marketplace, but do not currently have an Exemption Certificate Number, you can enter “PENDING” in Part I of Form 8965 Health Coverage Exemptions, and then submit it with your return.

Taxpayers who are claiming an exemption which can be granted only from the IRS with filing of their tax return will not need an Exemption Certificate Number, but will complete and submit Parts II and III of Form 8965, Health Coverage Exemptions with your return.

It is very important for taxpayers who are able to obtain an exemption from either the IRS or the Marketplace to complete Parts II and III of Form 8965 and attach to your federal tax return when you file.

Finally, taxpayers who did not have health insurance all or part of the year will have to make a shared responsibility payment because they did not have health coverage or qualify for an exemption for any month in 2015. The calculation is done on Form 8965 and the payment amount is entered on line 61 of Form 1040 (line 38 of Form 1040-A or line 11 of Form 1040-EZ). The payment which is based on household income starts at a flat minimum of $325 per adult ($162.50 per child under 18 years old; maximum floor of $975 per family) for 2015. If your household income is above the Federal Tax Filing Thresholds, the payment is 1% of your income above the threshold.

For example, Alice is age 27 and single with $30,000 of household income.  She did not have health insurance during the year.  Alice would have to make a shared responsibility payment of $394 ($30,000 income less $10,300 Federal Tax Filing Threshold for 2015 * 2%).  If Alice had health insurance part of the year, the amount due would be reduced by $32.83 ($394 / 12) per month she has coverage.

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