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The Affordable Care Act: What You Should Know as a Taxpayer

By Chuck McCabe | February 12, 2014

The Affordable Care Act is in effect and individual and small business taxpayers need to know how it will affect them. If you are uninsured, you must obtain insurance on your own or pay a penalty for not having coverage. Additionally, businesses with 50 or more employees must offer affordable healthcare coverage to employees starting in 2015 or pay penalties.

Individual Shared Responsibility Provision

This provision requires that you obtain the minimum essential coverage, qualify for an exemption, or pay a penalty when filing your federal income tax return.  Some taxpayers may be eligible for exemption or subsidies through tax credits based on their income and family size.

A key part of the ACA is the federal exchange – which allows individuals who are not insured to shop for the best rates and policies and purchase insurance through the exchange.

 

Employer Shared Responsibility Provision

Section 1980H of the IRS code states that a large employer had 50 or more full-time employees, including full-time equivalent employees during the prior calendar year. Full-time equivalent employees (FTEs) are employees that do not work full-time. The IRS determines the number of FTE employees to include in their overall count based on their hours of service. You may be considered as a large employer if you have a combination of 50 or more full-time and part-time employees.

If you employ seasonal workers and those seasonal workers push your employee count over 50 for more than 120 days during a calendar year, they will be taken into account.

Premium Tax Credits Under Scrutiny

Whether or not you qualify for a premium subsidy is determined by defined income requirements. You would only be eligible if you purchase insurance coverage through the federal exchange system.

There’s been quite a bit of back and forth about a disputed provision of the Affordable Care Act. The dispute is whether people who qualify for tax credits and bought insurance through the federal exchange because their state did not set up a marketplace, will receive them (which is the case in Virginia). The law says that you qualify for tax credits if you buy insurance on an exchange “established by the state.” The dispute is in the part of the clause that ends in “established by the state.”

In July, a three-judge panel from the D.C. Circuit Court ruled that those who qualified for subsidies and purchased insurance on federal exchanges because their states did not set up an exchange would not receive those subsidies because they did not purchase insurance through a state exchange. Virginia is one of those states. The same day, a federal appeals court in Richmond, VA agreed with the IRS interpretation and ruled that individuals purchasing from the federal exchange would be entitled to the subsidies.   In September an Oklahoma Federal District Court ruled that the IRS’ interpretation of the provision was unlawful but stayed a final decision pending an appeal of its order.

The Obama Administration has requested that the U.S. Circuit Court of Appeals for the District of Columbia re-hear the case in front of the full complement of judges. That request was granted and the re-hearing is set for December 17th.

Form 1095-A

If you purchased health insurance through any of the exchanges, there will be a new form you must to bring your tax preparer from your insurance exchange before they can file your tax return. The form is called 1095-A and it lists everyone in your household who has coverage and what the government paid for each person in subsidies. The exchanges are required to provide this form to individuals by January 31, 2015 to report health care coverage for the 2014 calendar year.

In addition to this form, your standard 1040 is going to have a few changes to it.

  • Line 46: You will need to report the excess of any Premium Tax Credit received throughout the year.
  • Line 62: You will need to report whether you have the minimum essential coverage or owe a penalty.
  • Line 69: You will need to report the amount of the Premium Tax Credit

Individual Shared Responsibility Payments

The law requires each individual member of the family to have minimum essential coverage unless he/she qualifies for an exemption. If you do not have this coverage you will be required to pay an individual shared responsibility payment when you file your individual tax return.

Penalties

The penalty for 2014 is the greater of:

  • 1% of your household income above the filing threshold
  • $95.00 per adult and $47.50 per child, limited to a family maximum of $285
  • The penalty is capped at the national average premium for Bronze coverage purchased from the Marketplace in 2014

The penalty for 2015 is the greater of the two:

  • 2% of your yearly household income
  • $325 per adult and $162.50 per child

Open Enrollment

Open Enrollment is November 15th – January 15th. You must acquire the Minimum Essential Coverage or pay a penalty. If you already have insurance and have recently had a life status change like marriage, children, a promotion or loss of job, you will need to make adjustments to you insurance during this period.

Your 2014 Return

If you did not have the “Minimum Essential Coverage” for 2014, the penalty you pay will come out of your tax refund. If you do not have a tax refund you will owe the shared responsibility payment with your tax return on April 15th. Additionally, if you received a premium tax credit up front in 2014 in-order to purchase insurance, you may owe some money based on your reported 2014 income and your actual income. That difference will come out of your tax refund or add to any tax due when you file your return.

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