It’s almost that time again! Year-end has snuck up, and in the middle of the hustle and bustle of shopping, wrapping and baking, I’m here to give you something else to think about… The Affordable Care Act (aka Obamacare) and how it will affect filing your taxes this year.
Before I begin, let me mention that I am not happy to be in the position of Health Insurance Police. After spending 32 years in the tax and accounting field (and liking it very much for the most part) I now feel like the government has wrangled all tax professionals into being unpaid government workers. In having to perform our due diligence and making sure your tax return is accurate, we might have to ask sensitive questions that appear ‘nosy’. On top of that the IRS says that if we don’t… we get fined $500 per occurrence. Each of our preparers has done extensive education and testing in the ACA arena in preparation of this season’s onslaught.
Beginning in January 2014, each person in the US was required to obtain Minimum Essential Coverage (MEC). We have the responsibility to insure that every individual listed on your tax return has had either:
- Minimum Essential Coverage for all 12 months of 2014
- Qualifies for an Exemption (more on these later)
- Is assessed an Individual Shared Responsibility Payment (penalty)
What Is Minimum Essential Coverage?
Employer sponsored coverage, including COBRA
Coverage purchased in the Exchange
Medicare Part A and Medicaid
Childrens’ Health Insurance Program (CHIP)
Veterans Administration, TRICARE
Student plans self-funded by a University
Employer Based Coverage
If your family has been covered all year by an employer-sponsored plan, please bring insurance cards or documentation from your employer that show the name of each covered dependent. We will make copies for our records.
While many of you have had coverage through your employer all year, others may have purchased through the NYS of Health (aka Exchange or the Marketplace) or another source. If you purchased coverage through the Exchange, you may have received a Premium Tax Credit based on your estimated income and family size. You will also receive a new form this year, Form 1095-A, issued by the Exchange. This form is mandatory for us to prepare your return. It will report whom was covered under the policy, the total cost of your insurance and the amount of the credit applied.
When we prepare your tax return, we will compare your actual income to what you reported, and make adjustments to the credit that you received. If you were due more PTC than what you used all year, it will be in the form of additional refund. Consequently it can also mean more tax liability if it goes the other way.
Notice I said that we have to have this information for “each person listed on your return”. This might be a child that you claim as a dependent but is covered by another person’s health insurance, like a different parent, ex-spouse, other family member, etc. You will need proof of that persons’ insurance as well. So if the other parent purchased through the Exchange, they need to provide you with a copy of the 1095-A they received. Let’s say you claim your niece or nephew, or a grandchild as your dependent. You will have to prove that they have coverage or will be assessed the penalty for that person. If the insurance were employer sponsored, we would need to make a copy of the health insurance card with that person’s name on it.
Knowing your Household Income
Part of reconciling the credit is reporting “household income”. This means the income of anyone in your household that is required to file a return. In most cases, a dependent is not required to file a return unless their earned income is more than $6,200 in 2014, or if they have unearned income (interest, dividends or other investment income) of more than $1,000. So if your child earned less than $6,200 from their part time job, they should file a return to get their withholding back, but their income will not be considered ‘household income’ for ACA purposes. Because we need to determine this, it is mandatory that you know the exact income of anyone you claim on your tax return. Remember, we prepare dependent 1040EZ returns for $35 when you bring their information with you. This is the best way to determine if they are required to file and if their income will affect your credit adjustment.
Exemptions and How To Get Them
So, you didn’t have coverage for all of 2014; here are some reasons that might qualify you for an exemption from the penalty.
- You’re uninsured for 3 consecutive months or less (having 1 day of coverage in a month counts!) *
- You don’t have to file a tax return because your income is below the filing limit for your filing status *
- The lowest priced coverage available would still be more than 8% of your modified household income *
- You’re a member of a federally recognized tribe or eligible for services through an Indian Health Services provider **
- You’re a member of a federally recognized health care sharing ministry **
- You’re a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare **
- You are incarcerated (convicted, not pending a trial or determination) **
- You’re not lawfully present in the US
- You qualify for a Hardship Exemption (some of the most common) ***
- You were homeless
- You were evicted in the past 6 months or were facing eviction or foreclosure
- You received a shut-off notice from a utility company
- You recently experienced domestic violence
- You recently experienced the death of a close family member
- You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property
- You filed for bankruptcy in the last 6 months
- You had medical expenses you couldn’t pay in the last 24 months that resulted in substantial debt
- You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member
Hardship exemptions are usually provided for the month before the hardship, the months of the hardship, and the month after the hardship. You can qualify for multiple hardships that dovetail each other. The Marketplace may provide the exemption for additional months after the hardship, including up to a full calendar year.
* We can apply for these exemptions when we prepare your tax returns using a new series of IRS Forms. Please alert us when you call to schedule your appointment that we will need additional time to do this.
* * For other than hardship exemptions, find your specific exemption form on this page: https://www.healthcare.gov/fees-exemptions/apply-for-exemption/
** Hardship exemptions must be applied for through the Exchange, which is currently taking 30-60 days. Certain documentation must accompany your application. Apply here https://marketplace.cms.gov/applications-and-forms/hardship-exemption.pdf
The Marketplace will mail you a notice of the exemption eligibility result. If you’re granted an exemption, the Marketplace notice will include your unique exemption certificate number (ECN). You’ll need your ECN when you file your federal taxes for the year you don’t have coverage or you will have to be assessed the Shared Responsibility Payment (penalty) We are able to amend the return after you have received your ECN to eliminate the penalty, but additional charges will apply.
A Penalty! Eek!
So, you haven’t had coverage and there’s not an exemption that applies to you… now what? We will calculate your Shared Responsibility Payment and it will either reduce your refund or increase the amount that you owe. For 2014, the penalty is the greater of $95 per adult and $47.50 per dependent under the age of 18 on your return, with a maximum of $285.00 ~ or 1% of your modified adjusted gross income. There are a multitude of calculations built into what looks like a simple calculation; too many to explain here.
With the addition of this new role we have to play, there are many new forms and educational requirements in order for us to accurately prepare your tax return. Depending on your exact situation, there might be 5 or more new worksheets and a whole series of ACA related tax forms that will be part of your 2014 tax return.
Our preparation fees are based on numerous factors: time spent educating ourselves on tax law changes including ACA, tax forms completed, and additional research required depending on your particular situation. Your tax preparation fee will most likely be increased due to these factors. It is estimated that for certain circumstances, it will take us longer to complete the new ACA requirements than to prepare your tax return prior to the Affordable Care Act. Fee increases range from $12 flat rate to $150/hour for extensive research and additional form completion.
Again, remember that this is not a job that we have raised our hand for. This has been assigned to us as tax professionals and if we do not comply with these requirements, we are fined $500 per return. Our staff is also unable to quote you a tax return preparation fee based on your ACA status. You will be asked when you call to schedule your appointment if you have had health care all year for yourself and anyone else listed on your return, as we will need more time for the appointment in these cases.
We look forward to seeing you in winter/spring and serving your 2014 tax and financial needs. If we can be of service before then, don’t hesitate to phone or email. Please schedule an appointment by calling 585-663-8210 or emailing email@example.com.
Our regular newsletter will be delivered electronically in early January!