The Affordable Care Act and Your 2014 Taxes

What are my obligations under the Affordable Care Act (ACA)?

The requirements under the Affordable Care Act (ACA), commonly referred to as Obamacare, went into effect on January 1, 2014.  ACA requires all U.S. citizens (and certain non U.S. citizens) meet the requirement to carry “minimum essential coverage” for health care unless they had a “qualifying exemption”.

When filing your 2014 taxes you will report for each month, whether you and your dependents carried qualifying health care coverage or had a qualifying exemption.  If neither requirement was met, you will be assessed and must pay a shared responsibility payment for each month the requirement was not met.

What is “minimum essential coverage”?

A health care plan or arrangement specifically identified under the law as providing minimum essential coverage, including:

• Government sponsored programs like Medicare Part A, Medicare Advantage, most Medicaid, TRICARE and CHIP programs, and comprehensive health care coverage for veterans;
• Employer-sponsored group health plans (including self-insured programs);
• Qualified insurance obtained through the Healthcare marketplace or through individual plans purchased from an insurance company;
• Grandfathered health plans (plans in existence prior to ACA’s enactment that have not changed since its enactment); and
• Other plans or programs that the Department of Health and Human Services has recognized as minimum essential coverage.

For more information on whether your plan qualifies, go to http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Minimum-Essential-Coverage.

What is a “qualifying exemption”?

Some individuals may qualify for an exemption because of:

• An inability to obtain affordable coverage
• A hardship
• Membership in certain religious sects
• Incarceration
• For a list of additional exemptions go to http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Exemptions

If you believe that you or your dependents qualify for an exemption, you should apply as soon as possible.  Even if you failed to apply for an exemption if you believe that you may qualify you should inform your tax professional.

How will I report compliance with ACA on my 2014 tax return?

You will report for each month in 2014 that you and every dependent on your return carried qualifying coverage or had a qualifying exemption.  If you obtained coverage during a month, the law considers you to have coverage for the entire month.

• Qualifying Coverage for the Entire Year: If you and your dependents had qualifying coverage every month in 2014, you simply check the box on Form 1040, 1040A or 1040EZ indicating full-year coverage.
• Coverage Obtained Through the Healthcare Marketplace:  If your coverage was obtained through the Healthcare Marketplace and you received a subsidy, you will receive Form 1095-A reporting the subsidy amount.  This subsidy must be reported on your tax return or the processing of your return may be delayed. If you received a subsidy, your actual household income on the 2014 return will be compared to the projected household income you entered when applying for healthcare coverage.  If actual household income was less than projected income, you are eligible for an additional subsidy.  If actual income was more, you are required to repay the excess subsidy you received.
• Qualifying Exemption: If you had a qualifying exemption every month in the year, you must claim this exemption on Form 8965 and file it with your tax return.
• No Coverage or Part-Year Coverage: If you had no coverage or coverage for just part of the year, you must calculate your shared responsibility payment on Form 8965 and file it with the tax return.  The shared responsibility payment reduces any refund you are due on the return.  If no refund is due, the shared responsibility payment will be added to the tax you owe on the return.

How is the shared responsibility payment calculated?

For 2014, the shared responsibility payment is calculated as:

• The greater of:

Percentage of Income:  1% of your household income that is above the tax return filing threshold for your
filing status;  or

Flat Dollar Amounts: Your family’s flat dollar amount, which is $95 per adult and $47.50 per child under the
age of 18, limited to a family maximum of $285.

• Maximum Cap: the maximum amount owed is capped at the national average cost of a bronze level health plan available through the Marketplace. In 2014, this was $204 per month per individual or $1,020 per month for a family of five.

For example, a married couple with three children under the age of 18 with a   household income of $160,000, and no coverage or qualifying exemption for the entire year would pay $1,397 because the Percentage of Income is greater than the Flat Dollar Amount but is less than the Maximum Cap.

The Percentage of Income and Flat Dollar Amounts increase each year.  In 2015, the percentage is 2% and flat dollar amounts are $325 per adult and $162.50 per child.  In 2016, the percentage of income is 2.5% and the flat dollar amounts are $695 per adult and $347.50 per child.  After 2016, these figures will be increased for inflation.

For questions regarding the Affordable Care Act and how it affects you and your business please contact Terri Brunsdon, CPA, Esq., at 330-374-1166.