Taxpayers who received an advance premium tax credit (subsidy) in 2014 and have not filed a 2014 federal return

As of the end of July 2015, approximately 1 million of the 4.5 million taxpayers who received an advance premium tax credit (subsidy) to help pay for their 2014 health insurance premiums had not filed a 2014 federal return and completed the required reconciliation on Form 8962 (Premium Tax Credit).

The IRS has sent these taxpayers Letters 5591, 5591-A, or 5596. These letters explain the importance for the taxpayer to file their 2014 federal return with a completed Form 8962 (Premium Tax Credit) within 30 days of the date of the letter in order to avoid a possible delay in receiving their advance premium tax credit to help pay for their 2016 health insurance premiums.

The automatic renewal process for the Federal and State Marketplaces will take place in early October 2015 for 2016 health insurance coverage. Those who go through the automatic renewal process will not be officially enrolled until December 15, 2015. Individuals who have not filed their 2014 federal return by early September 2015 may experience delays in receiving their advance premium tax credit (subsidy) that helps pay for their 2016 health insurance premiums.

Under the Affordable Care Act, any taxpayer who receives a subsidy to help pay for their health insurance premiums must complete the reconciliation of advance premium tax credit with the actual premium tax credit or they will be denied a subsidy in the following year. This means they must file a federal return and complete Form 8962 (Premium Tax Credit) for each year they receive a subsidy even if they otherwise do not have a filing requirement.

The Marketplace must receive from the IRS a positive indicator that the individual had completed the reconciliation in order to receive a subsidy for the subsequent year. Since it takes time for the IRS to process a return and then make it available to the Marketplace, there is a high likelihood that the IRS will have sent a negative indicator for those tax returns that are filed in mid to late September and October. Therefore, taxpayers may have to go through additional steps to receive their advance premium tax credit for 2016.

For more information see the following:

• IRS Health Care Tax Tip 2015-40 (File Your Tax Return Now to Receive Timely Advance Payments in 2016)
• Reconcile Advance Premium Tax Credits section of the Affordable Care Act Tax Provisions for Individuals and Families page on the IRS website
• Affordable Care Act: What’s Trending page on the IRS website

Individual Requirement to Have Insurance and State Insurance Exchanges

As we near the open enrollment period for the individual insurance requirement, now is the time to become more familiar with what people without health insurance will need to do when October 1, 2013 arrives. Below are the highlights of what the Affordable Care Act requirements are for obtaining health insurance, how the enrollment process on a State Exchange will operate, and how the premium assistance subsidy will work.

Individual Requirement to Obtain Health Insurance

Everyone will be required to have health insurance that meets a minimum level of benefits beginning on January 1, 2014.

If a person does not obtain health insurance for 2014, they will be required to pay an additional tax when they file their 2014 Federal income tax return. The additional tax for 2014 will be calculated as the greater of:

• 1% of their income that exceeds their filing threshold based on their filing status; or
• $95 for the taxpayer and if applicable, the spouse and dependents not to exceed $285 for 2014. The additional tax for dependents under age 18 is $47.50 for 2014.

For a complete explanation of how the additional tax will be calculated, see the Individual Penalty for Not Having Health Insurance page on the CrossLink website.

State Exchanges and Premium Assistance Subsidy

People who do not have health insurance will be able to obtain it at the State Exchange located in their State of residence. The State Exchange will also determine the potential amount of premium assistance subsidy that individuals qualify for.

The subsidy is designed to help people pay for their 2014 health insurance premiums. It is essentially a pre-payment of the premium tax credit that will be calculated when they file their 2014 Federal income tax return.

Here is how the State Exchange will work:

• Most people will sign up with the exchange via the internet by creating an account and filling out an online application on their State Exchange's website.
• The Exchange will use the information from the application and their income from their 2012 Federal return to first determine if they are eligible for coverage under a government health insurance program such as Medicaid.
• If not eligible for a government program, the exchange will determine what their subsidy is.
• Finally, the person applying may select an insurance plan that is offered by their State Exchange.

For more information on State Exchanges, see the following pages on the Federal government's Healthcare.gov website:

• Welcome to the Marketplace
• Health Insurance Marketplace

Health Insurance Premium Subsidy
The Health Insurance Premium Subsidy is also known as the Advance Premium Tax Credit.

A person is eligible for a subsidy (advance premium tax credit) to help pay for their 2014 health insurance premiums if they obtain their insurance at a State Exchange and their income is between 100% and 400% of the Federal Poverty Line.

It is important to remind people that the subsidy does not pay for the entire premium and the subsidy is paid directly to the insurance company. Individuals must pay a minimum amount of the premium based on where they fall on the Federal Poverty Line.

The minimum amount a person must pay is calculated as a percentage of their income and it ranges from 2%, if they fall between 100% and 133% of the Federal Poverty Line, up to 9.5%, if they fall between 300% and 400% of the Federal Poverty Line.

For a more detailed explanation of how the subsidy is determined, see the Premium Assistance Subsidy page on the CrossLink website.