The Affordable Care Act and taxes: What you need to know
While the Affordable Care Act (ACA) is no longer new, each year brings changes to the health care law. As you undoubtedly know, the ACA is inextricably linked to taxes so keeping up with annual changes is important. Given tax season is now well underway, here’s what you need to know when preparing your income tax return this season.
ACA paperwork: things to know before you file
Beginning each January, a variety of tax documents are sent your way. Some arrive via snail mail and others appear in your email inbox. And while you’ve probably come to know the most common, like 1040, W-2 and maybe even Form 1099, this tax season you may receive forms you haven’t seen before: 1095-B and 1095-C (Not to be confused with Form 1095-A, which was required last year).
“These new forms are creating a bit of confusion for taxpayers this year. Folks simply aren’t clear about what they’re supposed to do with Forms 1095 when they receive them,” says Andrew Townsend, tax analyst for TaxAct, a leading provider of affordable digital and download tax preparation solutions. “The important thing to know is that, in most cases, you do not need to wait until you receive these forms to file your tax return. Simply check a box on your return to indicate you had minimum essential coverage throughout the year.
“You don’t even have to worry about attaching 1095 forms to your return – the IRS receives a separate copy. Just put your form(s) in a safe place in case you need to verify any information later.”
A little background
In 2014, the IRS released Forms 1095-B and 1095-C as optional paperwork for employers and insurance providers. For tax year 2015, it became a requirement for every business and insurance provider to administer the forms to the IRS and the corresponding individual or employee as proof of provided coverage.
Here’s what you need to know about the three versions of Form 1095:
* Form 1095-A – if you purchased health insurance through the Health Insurance Marketplace in 2015, you can expect to receive Form 1095-A. When preparing your 2015 federal return, you will need to use this information to complete your income tax filing, claim premium tax credits and adjust any tax credit payments.
* Form 1095-B – your insurance company will send you this form if you received minimum essential health coverage through an employer, the government or a government-run plan such as Medicaid, Medicare, CHIP, TRICARE, VA benefits, etc.
* Form 1095-C – this form will come directly from your employer if it offered coverage to you through a company-sponsored health care plan.
No matter which 1095 form you get, the purpose is the same: to provide an accurate picture of the health insurance coverage you had access to throughout the past year. However, the information provided on Form 1095-B and 1095-C varies slightly.
Form 1095-B includes details specific to your selected health insurance plan, such as the name of your health insurance provider, who the plan covered and the period during which your family had health insurance.
Form 1095-C lists the coverage options you were offered through a company-sponsored health care plan. Even if you chose not to participate in your company-sponsored plan, you will still receive Form 1095-C as proof of the options made available to you.
Keep an eye out for these forms, which should be sent to you on or before March 31, 2016.
Steeper penalties for the uninsured
The ACA says that most Americans living in the United States are required to have qualified health insurance coverage.
“The good news is many people already meet minimum essential coverage requirements,” Townsend says. “However, those who didn’t have health insurance for more than two months in 2015 and did not qualify for an exemption may face a tax penalty for each month they went without coverage.”
This penalty, known as an individual shared responsibility payment, is not new this year, but the amount a taxpayer without qualifying insurance may be subject to pay with their 2015 tax return has changed.
The penalty, payable with 2015 returns (due April 18, 2016), is the greater of:
* 2 percent of your yearly household income above the tax-filing threshold (generally about $10,300) up to a maximum cost of the national average premium to purchase a Bronze Plan from the federal healthcare exchange (also called a Marketplace)
* $325 per adult ($162.50 per child under 18), but not more than $975
These costs have more than tripled since 2014 when the penalty was $95 per person or 1 percent of household income.
In 2016 they spike even higher. If you do not meet the minimum essential coverage requirements throughout 2016, you may pay the greater of 2.5 percent of your household income or $695 per adult and $347.50 per child under 18 (up to $2,085 for a family).
Help when you need it
It can be challenging to stay on top of annual changes to the ACA and the related tax implications. Fortunately, taxpayers can turn to a number of resources, including TaxAct, for help.
TaxAct provides a wealth of information about the ACA and your taxes at www.healthcareact.com. In addition, TaxAct 2015 products are updated with the latest tax law changes and ACA calculations. Taxpayers using TaxAct are guided through an easy Q&A interview that asks simple questions about their 2015 taxes and health insurance. To start your income tax return for free with TaxAct, go to www.taxact.com.