The Affordable Care Act and Your Tax Return

With the implementation of the ACA, a new vocabulary has been added to the world of tax preparation. In order to properly complete your income tax filings going forward, you will need to answer many questions concerning health care coverage for yourself and your family. Do not be surprised if your tax preparer asks you questions about things like minimum essential coverage, qualified exemptions, premium tax credits and advance payments.

In order to eliminate some of the confusion, the IRS has a new publication, IRS Publication 5187, Health Care Law: What’s New for Individuals and Families to assist taxpayers in understanding the terminology, calculations and new tax reporting requirement related to health care coverage.

Those that have minimum essential coverage (MEC), and did so for the entire year, will have the simplest calculations. However, determining whether their coverage meets the MEC requirements will be a little more difficult. Since insurance companies are not yet required to send reporting forms, preparers may have to make inquiries to determine the correct status for clients on their tax returns.

Of particular interest to taxpayers will be determining if the individual shared responsibility payment is required, if they qualify for a Premium Tax Credit, or if they must repay a credit that was awarded in advance based on estimated information that turns out to be different than the actual taxable income.

For those taxpayers that do not have minimum essential coverage (MEC), an individual shared responsibility payment may be due with their 2014 tax return. To determine the appropriate premium tax credit or shared responsibility payment, there are complex calculations regarding Modified Adjusted Gross Income which include limitations, the inclusion of the portion of Social Security income that is not taxable on the return, and some exceptions for taxpayers whose income levels fall below 400% of the federal poverty level.

Barring exceptions, the annual shared responsibility payment for those without minimum essential coverage for 2014 is the greater of:

  1. 1% of the household income that is above the tax return filing threshold for the taxpayer’s filing status or
  2. The family’s flat dollar amount, which is $95 per adult and $47.50 per child under 18, limited to $285 per family. This amount and percentage will generally increase each year.

If an advance credit payment was less than the premium tax credit calculated on the return, the taxpayer will see a reduction in their tax bill or a refund. If an advance credit payment is in excess of the premium tax credit, then the taxpayer will see a reduction in tax refund or a balance due on their tax return.

Publication 5187 does note that the IRS is prohibited from using liens or levies to collect the shared responsibility payments, but that they may offset the liability with any tax refund due to the taxpayer.

If you have any questions or would like to discuss how new health care regulations impact your individual tax return, please contact Thompson Greenspon so that one of our seasoned tax professionals can assist you.

Written by: Erin Kidd, EA – Tax Individual Practice Supervisor, Thompson Greenspon

 

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