The Affordable Care Act is supposed to make health care coverage universal and more affordable to millions of Americans, but it might also make filing your 2014 taxes more cumbersome and more expensive.
“This tax season is the first time people will experience the financial consequence of the individual mandate, and it will bring additional paperwork and some surprises for taxpayers,” remarked Michael Mahoney, healthcare expert and senior vice present of consumer marketing for GoHealth, a health insurance technology platform.
- For the vast majority of tax filers, the changes will only mean checking a box to indicate that they had health coverage during 2014. But some of those who signed up for Obamacare will need to take additional steps when filing their taxes this year.
- Consumers who signed up for health care through a marketplace will receive a new form this month, called 1095-A, which they’ll have to fill out and will be needed for filing Federal taxes.
- On form 1095-A, you’ll be asked to figure out whether you received the correct amount of financial assistance, whether you are subject to a penalty and whether you can claim an exemption among other things.
Advance Premium Tax Credit
The government has been providing financial assistance to some Americans to lower the monthly cost of health insurance on an advanced basis. These credits have been applied directly to monthly health insurance premiums.
- The tax credit is determined based on your estimate of your household income. It needs to be reconciled taking into account your actual household income when you file your tax return.
- You may owe money if you’ve underestimated your income, reducing your refund, while it could increase your refund if you’ve overestimated it.
- If you don’t have health insurance and don’t qualify for an exemption, you’ll have to pay the higher amount between a flat fee penalty and a percentage penalty.
- The penalty will be $96 for an adult and $47 for a child for 2014, up to $285 per household, or 1 percent of your annual household income. The 2015 penalty for lacking insurance is $325 or 2 percent of household income.
This could mean a smaller refund or you might owe more in taxes. “This will be an unpleasant surprise to people who are still unaware that virtually everyone is now required by law to have health insurance,” said Mahoney.
You could lower this penalty or eliminate it if you qualify for one of the exemptions based on financial hardships, religious affiliations and gaps in coverage among others. Just remember that you may need to apply for some exemptions and receive approval.
Modified from an article in The Fiscal Times, and other online sources.