I am not a sports fan. Other than NCAA basketball, I have no interest at all in whatever big game is on.
Coming from a family of diehard Jet fans, you might think I was switched at birth (in fact my grandfather insisted I was, but that’s another story). However my affinity for numbers, finances, and all things tax related is proof of my parentage; I follow squarely in my dad’s footsteps. So it’s no wonder that I am geared up for the kickoff of tax season with the opening of electronic filing this week.
And what an interesting season this is shaping up to be. The Affordable Care Act will impact everyone’s tax return, whether it is as simple as checking a box, or as complicated as figuring a penalty or subsidy payback. How will it affect you? Let’s find out.
First things first. This year your tax return has a new question: did you have health coverage for all of 2014, for part of the year, or none of the year? If you were covered all year through a plan other than Obamacare (the Marketplace), you can check the “yes” box and move on- for the 2014 return at least. If you did not have coverage all year or had coverage through the Marketplace, there is more to do.
I had Marketplace coverage.
If you bought coverage through the new Marketplace, you should receive a Form 1095-A with information you will need to complete your tax return. The form will include things like your insurance company and policy number, who was covered under your policy and for what period. It also includes the premium for your plan, the premium for the second lowest cost silver plan, and any subsidy that was applied to your premium. The form serves two purposes; to prove to the government your period of coverage, and also to reconcile the premium you paid to the premium you should have paid, based on your final 2014 income. You will enter the information from this form in the appropriate place on the 1095-A worksheet, which may lead you to further worksheets if you did not have coverage all year or if you received or were eligible for a subsidy.
If you did not receive a subsidy and you and everyone on your tax return had coverage all year, then the box line on your tax return (Line 61 on the 1040) that says “Health care: individual responsibility, full year coverage” should be checked, and you are done with that.
I did receive a subsidy.
Your subsidy, or an advance on your premium tax credit, must be reported on your return (from Form 1095-A) and compared with your actual income on Form 8962. The form starts with your modified adjusted gross income and family size, then adds the modified adjusted gross income of your dependents (a twist I had not come across before seeing the form). That total is compared to the federal poverty amount based on family size and your state. If your total household income is 400% or less of the poverty line, you were eligible for the credit and continue on to calculate what that credit should have been and compare to what was applied to reduce your premium. If what you were entitled to is more than what you received, you get a further credit on your return; if it was less, then the difference is added as an additional tax on the return.
If you had coverage for only part of the year, or got married during the year, the calculations are based on months rather than the full year.
Let’s use a fictional taxpayer, Adam Smith, as an example. Mr. Smith was out of work in the beginning of 2014 and didn’t have coverage for the first four months of the year. He applied for a marketplace plan and estimated his income, which gave him a $200 a month subsidy against his premium. He had a great year income-wise and ended up with a modified adjusted gross income of $52,000. When he completes form 8962 he will find he was not entitled to any subsidy, and must pay back $1,600 on his return.
I had coverage for part of the year.
Now we move on to Form 8965. Other than adjusting any premium tax credit for the months covered, you may also be subject to a penalty (or shared responsibility payment) if you had too much of a gap in coverage. The law allows for an uninsured period of less than three consecutive months without triggering the penalty, and coverage for even one day of a month counts as coverage for the entire month. There is also a provision for those that signed up for marketplace coverage by March 31 to be relieved of the penalty.
Our taxpayer Mr. Smith had a four month gap in coverage, so he must figure his penalty. His penalty will be the greater of $95 or 1% of his modified adjusted gross income in excess of his filing threshold (the amount of income at which he is required to file). A single taxpayer’s threshold is $10,150, so his full year penalty is $419. That is then prorated for the months he was not covered, so his actual penalty is $140.
Should Mr. Smith have been married or had children, the penalty would apply to all (although children are assessed at half), up to the family limit of the greater of $285 or 1% of the amount of income in excess of the filing threshold.
I was not covered at all.
For taxpayers with no coverage, the penalty is again figured on Form 8965, but with no proration. There are exemptions allowed however. Some were granted exemptions in advance through the marketplace, but most will be applying for an exemption on the tax return.
Some acceptable reasons for applying for exemptions include coverage was unaffordable, your income was under the filing threshold, you lived abroad, were incarcerated, an Indian tribe member, you had government coverage elsewhere (such as TriCare), you were a member of a health care ministry, or you faced a hardship. Acceptable hardships include being homeless, receiving a utility shut off notice, recent domestic violence, facing eviction, the death of a close family member, filing bankruptcy in the past 6 months, substantial medical expenses that resulted in debt, unexpected increase in expenses due to caring for an ill or elderly family member, your individual insurance policy was cancelled and you believe marketplace plans are too expensive, or you faced another hardship in obtaining coverage. The hardship exemption applies to the month or months you encountered the hardship.
Another exemption from the penalty applies to those who were locked out of subsidies due to their state not expanding Medicaid. Pennsylvania was one such state. That means Pennsylvania’s Medicaid income eligibility level remained the same as in the past (which was difficult to qualify for unless you were a parent or had special status), while the federal guidelines increased to 133% of the poverty line. Those whose incomes were in between those two guidelines were neither eligible for Medicaid nor a subsidy, and are exempt from the penalty if they did not buy coverage. That gap was fixed for 2015, so if you were one of those affected, do apply for coverage again. You may find you qualify for Medicaid this year.
For the 2015 filing season, you will be required to provide details about your coverage on your tax return, whether you purchased through the marketplace, had an employer plan, were on Medicare, or had some other coverage. Beginning this month, all providers of minimum essential coverage are required to furnish information to the government about who is covered under the plan. The provider will then send you a statement early in 2016 with the information you will need to file your tax return. The penalty for not being covered also increases to $325 per person or 2% of your income over the threshold, with a max of the greater of $975 or the 2%.
All this pregame excitement makes me want to throw a party- a tea party perhaps?