2015 will be a new year for individuals to understand the new penalty requirements under federal law for not obtaining minimum essential coverage and for tax returns related to the new requirements under the Affordable Care Act (ACA). Three new ACA reporting requirements for 2015 will be to report your health coverage, report any exemption for not obtaining health coverage, and to report information on government provided premium tax credits, if any.
Individual Reporting of Requirement to Obtain Health Coverage:
The ACA includes the individual shared responsibility provision, which requires taxpayers and their family to have qualifying health care coverage for each month of the year, qualify for a coverage exemption, or make a shared responsibility payment as an additional tax penalty.
If taxpayers and their dependents had minimum essential coverage for each month of the year, the taxpayer will simply check a box indicating the coverage with their tax return. No further action is required if you meet this requirement. For many, this will simply be checking a box under line 61 of the Form 1040 when they file their federal income tax return. Individuals are treated as having minimum essential coverage for the month as long as the individuals are enrolled in and entitled to receive benefits under a plan or program identified as minimum essential coverage for at least one day during that month.
If taxpayers or any dependents did not maintain minimum essential coverage for each month of their tax year and did not qualify for a coverage exemption, they must make an individual shared responsibility payment with their federal tax return. This will be listed as "Other Taxes" and for many will also be identified on line 61 of Form 1040. (This will also appear on line 11 of the 1040EZ and line 38 of the 1040A).
The amount of the penalty varies by individual and will be determined monthly.
Calculating the Amount of Penalty:
Taxpayers will owe 1/12th of the annual shared responsibility payment for each month they or their dependent(s) do not have coverage and do not qualify for a coverage exemption. For 2014, the annual penalty amount is the greater of:
- One percent of the household income (modified adjusted gross income or MAGI) that is above the tax return filing threshold for the taxpayer’s filing status, or the family’s flat dollar amount, which is $95 per adult and $47.50 per child (under age 18), limited to a family maximum of $285. If a penalty applies, most filers will pay the 1 percent penalty calculation. For example, for a single person whose modified adjusted gross income is $37,000, the penalty would be $269 ($37,000 – $10,150 = $26,850 x 1percent = $269).
- For 2015, the penalty increases to $325 per adult or 2 percent of income, and in 2016 it will be the greater of $695 or 2.5 percent of income.
The shared responsibility payment is also capped at the national average premium for a bronze level health plan (around $9,800). Taxpayers must know their household income and applicable income tax return information to accurately calculate the amount owed. Taxpayers can use the worksheets located in the Instructions to Form 8965 (see below) to determine this amount.
Open Enrollment Special Rules:
If an individual enrolls in a plan through the Marketplace prior to the close of the initial open enrollment period in 2014, when filing a federal income tax return in 2015 the individual will be able to claim a hardship exemption from the shared responsibility penalty for the months prior to the effective date of the individual’s coverage, without the need to request an exemption from the Marketplace.
As a separate rule for 2015, all federal exchanges and most if not all state exchanges will provide a new period of time to enroll in the exchange coverage for uninsured individuals who are just learning of their penalty. This will extend the 2015 open enrollment window from March 15th to April 30th, 2015.
Exemption for Individual Penalty to Obtain Health Coverage:
If you do not have minimum essential coverage for yourself and everyone else in your tax household, and you want to claim a coverage exemption, you can file Form 8965 for coverage exemptions as an attachment to your tax return. For example, if you are claiming an exemption because coverage was not obtained for less than 3 consecutive months during the year, then you would fill out Form 8965 using coverage code "B" as shown in the instructions. This can be an attachment to your Form 1040, Form 1040A, or Form 1040EZ.
If you are unable to check the box on your Form 1040 series return indicating that every member of your tax household had minimum essential coverage in every month of 2014, you do not need to take any action to indicate that some members of your tax household had minimum essential coverage for some or all months in 2014.
If you are not required to file a tax return, your tax household is exempt from the shared responsibility payment and you do not need to file a tax return to claim the coverage exemption. However, if you are not required to file a tax return but choose to file anyway, claim the coverage exemption on line 7a or 7b of Form 8965.
Reporting Premium Tax Credits:
If you obtained qualified health plan coverage through either a federal or state run exchange and you intend to take a premium tax credit (or did so at enrollment), you will have to fill out Form 8962 with your tax return.
You must file an income tax return and attach Form 8962 even if you are not otherwise required to file. You must file Form 1040, Form 1040A, or Form 1040NR. This means an EZ form is not allowed.
The filing requirement is true for the taxpayer and for individuals of the taxpayer's tax household. If you are claimed as a dependent, the person who claims you will file Form 8962 to take the tax credit and, if necessary, repay excess tax credits for your coverage. The dependent(s) do not need to file Form 8962.
You will need Form 1095-A, Health Insurance Marketplace Statement, to complete Form 8962. The Exchange (or Marketplace) is required to provide or send Form 1095-A to the tax filer(s) identified in the enrollment application by January 31, 2015. (The Government recently announced that some people will receive an incorrect Form 1095-A because they included the monthly premium amount of the second lowest cost Silver plan for 2015 instead of 2014. They will be notified and asked to wait to file their taxes. The potentially incorrect amount will show on Part III, Column B of form 1095-A--and could impact their tax calculations. Corrected forms will be available in early March. See update below on Notice 2015-30.)
Correcting Premium Tax Credits:
In some cases, the Exchange may have determined your eligibility for 2014 premium tax credits using projections of your income and your number of personal exemptions when you enrolled in a qualified health plan. If this information changed during 2014 and you did not promptly report it, the amount of credit paid may be substantially different from the amount of premium tax credit you can take on your tax return.
Form 8962 is a way for the government to check that the premium tax credit was correct given your end of year income. If you received an advanced credit that turns out to be too high, you have excess credits and you must repay the excess, subject to certain limitations. If your premium tax credit is too low, you can reduce your tax payment or increase your refund by the difference.
[Update for 1/26/15 IRS Notice 2015-9. This Notice provides special relief in 2014 only for taxpayers for late payment under §6651(a)(2) of a tax and underpayment of estimated tax under §6654(a). It does not apply to the tax for failure to obtain health coverage. Certain restrictions and filings will apply. For underpayment notices, the taxpayer should respond to such notices with the following statement: “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.” For late payment relief, taxpayers should should check box A in Part II of Form 2210, complete page 1 of the form, and include the form with their return, along with the statement: “Received excess advance payment of the premium tax credit.” It appears the tax for the reconciliation/repayment must still be paid subject to interest, it simply means the taxpayer does not pay an additional penalty for not paying on time.
Update for 4/2015 IRS Notice 2015-30. This Notice also provides relief in 2014 only for taxpayers who may have used the wrong Form 1095-A sent to them for the 2014 tax year. This relief is from the penalty under section 6651(a)(2) of the Internal Revenue Code for late payment of a balance due, the penalty under section 6651(a)(3) for failure to pay an amount due upon notice and demand, the penalty under section 6654(a) for underpayment of estimated tax, and the accuracy related penalty under section 6662. This relief applies only for the 2014 taxable year and may require additional disclosed statements when filing your taxes or responding to IRS claims. ]
The ACA and the tax reporting rules will be new for everyone for 2014 filings made in 2015. If you need assistance on ACA issues, please contact Kinney & Larson.