Add this to the list of your New Year’s fitness regimens: jumping through the hoops of the health care law's tax requirements.
This tax-filing season, the law's requirement that individuals obtain health coverage or pay a penalty will be enforced for the first time. On your 2014 tax return, you'll need to indicate whether you were covered for the full year. But the requirements go beyond simply checking a box.
Taxpayers also need to understand new forms that they'll receive in the mail in January and calculate whether any subsidies they received through the health-insurance marketplace in 2014 were too high or too low relative to their household income and family size. And taxpayers who were uninsured for part of 2014 must determine whether they qualify for one of dozens of available exemptions from the penalty.
Tax preparers are already fielding a lot of questions about the Affordable Care Act's tax consequences. "A lot of people are mystified" about their personal tax impact, says Mark Ciaramitaro, vice-president of health care services at H&R Block.
With the early weeks of tax-filing season overlapping with the final weeks of the marketplaces' open enrollment period, people turning to the marketplaces or in-person assisters for help with tax issues may have a long wait. "Brace yourself for needing to exert a little effort to follow up on this," as taxpayers, marketplaces, insurers and employers work to meet new requirements, says Karen Pollitz, senior fellow at the Kaiser Family Foundation.
Document your coverage. If you had health coverage in 2014, in the next few weeks you may receive some unfamiliar tax forms. Form 1095-B, sent by health insurers, will indicate the names of covered individuals in your household and the months that they were covered. If you had coverage for even a single day of a calendar month, you're considered covered for the full month.
The 1095-C, sent by large employers, will indicate whether your employer offered coverage and the employee share of the monthly premium for the employer's lowest-cost plan. If you declined employer coverage because it was too costly and instead bought 2014 coverage through the marketplace, this form helps document whether you were eligible for premium tax credits. If the employee share of your employer's lowest-cost plan is more than 9.5% of your 2014 income, you can claim premium tax credits for 2014.
Here's the twist: These two forms are not mandatory for the 2014 tax year -- so some people who were covered in 2014 will receive them and others won't. "It's possible that people won't have any tax form to document their health insurance coverage" for 2014, says Tara Straw, senior policy analyst at the Center on Budget and Policy Priorities. If you were fully covered for all of 2014 and don't receive any form, simply check the box on your tax return indicating your coverage. The forms are required for tax year 2015 and all taxpayers will need documentation of their coverage.
Adjust tax credit. Your to-do list is a little longer if you received subsidies in 2014 reducing the cost of coverage you purchased through the marketplace. By the end of January, you should receive Form 1095-A from the marketplace, showing the amount of premium tax credits paid to the insurer on your behalf. This is "an absolute must-have document," Ciaramitaro says, because you need it to complete your 2014 tax return. If you don't receive it by January 31, log on to your marketplace Web site and check for an electronic version.
The premium tax credit shown on 1095-A was based on your estimated 2014 household income and family size. Now you will need to determine the amount of premium tax credit you were actually eligible for, based on the modified adjusted gross income reported on your 2014 tax return and your family size as of the end of the year. That calculation happens on Form 8962, which you must file with your tax return. If your actual income was lower than you had estimated, you can get the remainder of the tax credit as a tax refund. If the credit you received was too high, you may have to repay some or all of the excess.
Unanticipated changes in 2014, such as a divorce or a retired spouse going back to work, could mean big adjustments in the amount of subsidy you qualify for. For people earning up to 400% of the federal poverty level -- up to $46,680 for an individual -- there are caps on the required repayment. But if your income ends up above 400% of poverty level, "that's the scary zone, because you might have to pay it all back," Pollitz says. One way to lower 2014 adjusted gross income, and possibly get below the 400% threshold, is to make a traditional IRA contribution for 2014 by April 15.
Seek penalty exemption. If you were uninsured for some or all of 2014, you may have to pay a penalty when you file your tax return. The penalty is $95 per person or 1% of your household income above the tax-filing threshold -- whichever is higher.
Before you pay up, find out whether you qualify for any of the dozens of available exemptions. Go to www.healthcare.gov and type "exemption" in the search box to learn about exemptions for financial hardship, short coverage gaps and other situations.
Certain types of exemptions can be claimed through your tax return. These include exemptions for people who had only a brief coverage lapse -- generally defined as up to three consecutive months -- and for those who cannot afford coverage because it would consume more than 8% of household income.
Many types of hardship exemptions -- including those for the recent death of a family member or high medical expenses -- are available only if you file a paper application through the marketplace. You may need to wait weeks to receive an exemption certificate number, which you will enter on your tax return. Taxpayers should use this option "as a last resort, if they're not eligible for other exemptions on the tax return," Straw says. All taxpayers claiming exemptions should complete Form 8965 and attach it to their tax return.
Even tax experts acknowledge that some of the new forms and procedures are complex. For face-to-face help, go to https://localhelp.healthcare.gov to find in-person assisters in your area.
Tax-preparation services are also offering new online tools to help customers understand the filing requirements, penalties and exemptions. H&R Block offers a calculator to help users understand the health care law's impact on their taxes at www.hrblock.com/aca-tax-impact. And TurboTax offers a tool to help determine whether you qualify for an exemption. Go to https://turbotax.intuit.com/health-care and click on "exemption check."