Affordable Care Act Reminders for Tax Year 2016 Returns

Though the new Congress and Administration may substantially change the requirements for the Affordable Care Act, its current provisions remain in place for 2016 returns.

As we approach the beginning of the 2017 filing season here are some reminders about the Form 1095-A, exemptions from the requirement to have health insurance, and the increase in the individual penalty (individual shared responsibility payment) amount for 2016 federal income tax returns.

Importance of Form 1095-A

The Form 1095-A (Health Insurance Marketplace Statement) will be received by approximately 10 million individuals that obtained their 2016 health insurance at the Federal or a State Marketplace.

This form is needed in order to complete the 2016 Form 8962 (Premium Tax Credit) which calculates their Premium Tax Credit for 2016 and, for those who received a subsidy, to complete the reconciliation of the subsidy with the actual credit. Read more

Health Care Coverage Exemptions

Most individuals who did not have health insurance for all or part of 2016 probably qualified for an exemption. Therefore, it is important that before any penalty is calculated that an individual determines whether they may qualify for a health care coverage exemption.

If an individual qualifies for a health care coverage exemption they must complete the applicable parts of the 2016 Form 8965 (Health Coverage Exemptions) and include it with their 2016 federal tax return. Read more

Individual Penalty (Shared Responsibility Payment) for 2016

If it is determined that an individual does owe a penalty for Tax Year 2016, it is calculated as the greater of:

• 2.5% of the individual’s income that exceeds their 2016 filing threshold (personal exemptions plus standard deduction for their filing status);
  Or
• A flat dollar amount that is assessed for the taxpayer, spouse, and dependents as follows:
• $695 per taxpayer, spouse, and dependents over age 18
• $347.50 for each dependent under age 18

The maximum family flat dollar amount for 2016 is $2,085. Read more

Click here to read the entire CrossLink Tax Update that includes further information about the Form 1095-A, exemptions from the requirement to have health insurance, and the increase in the individual penalty amount for 2016 federal income tax returns.

Affordable Care Act – New Information Forms and How the ACA Relates to the Federal Tax Return

Below is an overview of the Affordable Care Act (ACA) related forms and the new information forms that all individuals who had health insurance in 2015 will receive during this coming filing season.

New Information Forms for the Upcoming 2016 Filing Season
There will be two new ACA related information forms that all taxpayers who had health insurance during 2015 will be receiving towards the end of March or early April of this coming filing season.

Since these two new information forms will be received late in the filing season, it is important to emphasize that they are for informational purposes only and are not needed to complete an individual’s 2015 federal tax return. Their purpose is to show individuals that they had health insurance during 2015, who was covered by their policy, and how many months they had coverage. They are essentially their proof that they had coverage during the year.

Form 1095-B (Health Coverage)
All individuals who had health insurance during 2015 will receive a Form 1095-B (Health Coverage) around the end of March 2016 from the insurance company that provided them coverage.

The Form 1095-B will give the individual policy holder the following information:

• The name, address, and SSN of each person covered by the policy
• The number of months each person was covered during the year
• The name of the health insurance issuer
• Name of Employer (if it is employer sponsored coverage)

Form 1095-C (Employer Provided Health Insurance Offer and Coverage)
All individuals that received health insurance from a company that had 50 or more full-time employees will receive a Form 1095-C (Employer Provided Health Insurance Offer and Coverage) around the end of March 2016.

The Form 1095-C will inform the employee of the following information:

• Name, address, and SSN of the employee
• Name and SSN of the employee’s dependents that were covered and for which months they were covered during 2015
• Name, address, and EIN of Employer
• For those who elected not to receive coverage, information on the coverage offered

It is also important to remember that none of the information on these two information returns is entered on the 2015 federal tax return. Therefore, it is not necessary for individuals to have received either of these two information forms in order to complete and file their 2015 federal tax return.

This is especially true for taxpayers who file in the early part of the filing season. Since they will not have received either the Form 1095-B or 1095-C, it is important to reiterate that the taxpayer may still file their 2015 federal tax return.

See the Questions and Answers about Health Care Information Forms for Individuals (Forms 1095-A, 1095-B, and 1095-C) on the IRS website for more information about the Forms 1095-B and 1095-C.

Affordable Care Act Related Forms
Below are the 2015 federal individual forms that are related to the Affordable Care Act:

• Form 1095-A (Health Insurance Marketplace Statement)
  This information return will be received by all individuals who purchased their health insurance from a Marketplace as follows:
  • Federal Marketplace – By end of this month (January). A copy will also be available via the individual’s account on healthcare.gov.
  • State Marketplace – No later than early February.
  
  
  The information included on Form 1095-A (Health Insurance Marketplace Statement) is needed to complete the Form 8962 for both the calculation of the Premium Tax Credit and to do the reconciliation of the credit with the Advance Premium Tax Credit (subsidy).
  See the Questions and Answers about Health Care Information Forms for Individuals (Forms 1095-A, 1095-B, and 1095-C) on the IRS website for more information on the Form 1095-A.

• Form 8962 (Premium Tax Credit)
  This form is completed by taxpayers who purchased their health insurance through a Marketplace and whose income is between 100% and 400% of the federal poverty line and are claiming a Premium Tax Credit.
  For individuals who received an Advance Premium Tax Credit (subsidy), this form must be completed in order to complete the reconciliation of the calculated Premium Tax Credit and the subsidy. If it is not included with the original return, the IRS will not complete the processing of the return until they receive a completed Form 8962, which will delay any refund shown on the return.
  The result of the calculation of the Premium Tax Credit and the reconciliation will be either a refundable credit or an additional tax.
  See the 2015 Form 8962 and the related instructions for more information.

• Form 8965 (Health Coverage Exemptions)
  Any individual who qualifies for an exemption from the requirement to have health insurance for all or part of 2015 will complete this form.
  For an explanation of what types of exemptions there are and how to apply for them, see the Exemptions section of the Affordable Care Act for Individuals page of the CrossLink Tax Resource Center.
  See the 2015 Form 8965 and the related instructions for additional information.

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

Tax Update: New IRS Publication 974 (Premium Tax Credit)

The final Publication 974 (Premium Tax Credit) is now available on the IRS website on the Current Forms and Publications page. This new publication provides additional instructions and information for taxpayers who purchased health insurance from a Marketplace and had a situation that was not covered in the Form 8962 (Premium Tax Credit) or the Form 1040 instructions.

The publication covers the following:

• How to calculate the self-employed health insurance deduction for self-employed individuals who purchased health insurance through a Marketplace
• How to request penalty relief for taxpayers who must pay excess advance premium tax credit 
• Information on individuals who are not lawfully present in U.S. and are enrolled in a qualified health plan
• Taxpayers who are filing a tax return but who are not claiming any personal exemptions
• How to determine the applicable second lowest cost silver plan premium amount that is needed to calculate the premium tax credit
• Taxpayers who were married during the tax year and want to use the alternative calculation that may lower their taxes

Individuals Who Opted to Not Take Advance Premium Tax Credit and Form 1095-A (Health Insurance Marketplace Statement)

If an individual opted to not receive an advance premium tax credit (subsidy) when they obtained their health insurance through the Federal Marketplace, the Form 1095-A (Health Insurance Marketplace Statement) that they receive will have zeros in Part III, column B (Monthly Premium Amount of Second Lowest Cost Silver Plan – SLCSP) for the months that they had health insurance in 2014.

In order for these individuals to be able to calculate a premium tax credit on Form 8962 (Premium Tax Credit), they must enter an amount greater than zero for the Second Lowest Cost Silver Plan in Part II, column B. To determine what this amount should be, the individual can use the Find 2014 Silver Plan Premium look up tool on the healthcare.gov website.

Here is the information an individual will need to determine the Second Lowest Cost Silver Plan amount using the tool:

• Zip Code and County where they lived each month in 2014
• Age of each family member covered
• Months each family member was covered and was not eligible for other coverage outside the marketplace.

If the individual obtained their insurance through one of the 15 State Marketplaces and did not receive a subsidy, then Form 1095-A, Part III, column B may contain zeros for the months that they had health insurance during 2014. If this is the case, they will need to go to the applicable State Marketplace website to determine what the Second Lowest Cost Silver Plan amount should be as follows:

• California – Form 1095-A Information
• Colorado – Find the Second Lowest Cost Silver Plan Premium
• Connecticut – Silver Plan Premium Calculator
• District of Columbia – SLCSP Calculator
• Hawaii – Contact Information
• Kentucky – Benchmark Plan Tool
• Maryland – SLCSP Worksheet
• Massachusetts – General website
• Minnesota – Silver Plan Look up Tool
• Nevada – SLCSP Table
• New York – SLCSP table
• Oregon – SLCSP Lookup Tool
• Rhode Island – Tax FAQs page
• Vermont – Tax Questions page with SLCSP information
• Washington – SLCSP Lookup Tool

IRS Update: Individual’s 2014 Federal Return and the Affordable Care Act

As we get closer to the beginning of the 2015 filing season, it is important to understand how the Affordable Care Act will impact every individual who files a 2014 federal return. They may be impacted in a small way or major way depending on their health insurance status and where they obtained their health insurance during 2014.

Since the majority of taxpayers will be covered for the entire year by their employer, a government sponsored plan (such as Medicaid or Medicare), or from other qualifying health insurance, they will only need to check the Full Year Coverage Checkbox on Form 1040, line 61.

Taxpayers who purchased their health insurance at the Marketplace (State or Federal Exchange) will need to do the following:

• Taxpayer will receive by mail a Form 1095-A (Health Insurance Marketplace Statement) from the Marketplace. This information return should be received by the taxpayer by January 31, 2015 and will include details needed to complete the premium tax credit and do the reconciliation if they received an advance premium tax credit (subsidy) that helped pay their monthly health insurance premiums during 2014.
• Complete Form 8962 (Premium Tax Credit)
• Calculate the premium tax credit based on their 2014 income and family size.
• Enter the advance premium tax credit (subsidy) information from Form 1095-A, Part III, if applicable.
• Read more

Taxpayers who did not have health insurance for 2014 will do one of the following:

• Complete Form 8965 (Health Coverage Exemptions) to claim an exemption from the health care coverage requirement;

Or

• Have to pay shared responsibility payment (penalty) which will be calculated according to a worksheet in the Form 8965 instructions and entered on Form 1040, line 61.

Click here to read the entire CrossLink Tax Update that includes further information on individual's 2014 federal returns and the Affordable Care Act.

IRS Health Care Tax Tips and Reminder about the Premium Tax Credit for 2014 Returns

Even though most tax provisions of the Affordable Care Act do not begin to affect federal tax returns until next filing season, the provisions will have an impact on the decisions taxpayers make if they need to obtain their health insurance through an Exchange and they receive the advanced premium tax credit (subsidy) to help them pay for their premiums. Below you will find more IRS resources available to taxpayers that help explain the tax provisions and a reminder about the Premium Tax Credit.

New IRS Health Care Tips Page
The IRS has added a Health Care Tax Tips page to their website to help individuals understand how the Affordable Care Act may affect their taxes beginning with their 2014 federal return.

At the present time this site provides links to information on:

• Premium Tax Credit
• Why it is important for individuals who obtain health insurance through an Exchange and receive a subsidy to help pay for their insurance premiums to inform the Exchange of changes in their income or family size during 2014
• Overview of the penalty for not obtaining health insurance and who is exempt from the penalty provision
• Where to obtain more information on health insurance exchanges, other tax law provisions of the Affordable Care Act, and individuals’ health care choices

The IRS will be adding to this site throughout 2014 so be sure to check it periodically to see what new information the IRS has posted.

Premium Tax Credit
Even though the calculation of the premium tax credit will not take place until next year, it is essential to become familiar with this credit. Doing so will enable you to better explain to your clients who received a subsidy how it will affect them when they file their 2014 federal return next filing season.

Below is a brief overview on the premium tax credit:

Every taxpayer who received an advanced premium tax credit to help pay for their health insurance will have to complete the 2014 Premium Tax Credit form when filing their 2014 federal return. The calculated amount of the 2014 premium tax credit will then be compared to the subsidy amount they received which will result in one of the following:

• The taxpayer will receive a refundable credit if the premium tax credit is more than the subsidy amount.
• The taxpayer will have to pay an additional tax if the subsidy amount is higher than the premium tax credit. The amount of additional tax will be limited based on where the taxpayer falls on the federal poverty line. It will range from a minimum of $300 ($600 for married filing joint) to a maximum of $1,125 ($2,500 for married filing joint).

It is important to understand that a taxpayer who receives a subsidy to help pay for their health insurance premiums is required to file a 2014 federal return and complete the premium tax credit form. This is true even if they otherwise would not be required to file a federal return. If they do not complete the premium tax credit form, they will not be able to receive a subsidy in future years.

For a more detailed explanation of the Premium Tax Credit, see the How the Affordable Care Act will Affect You and Your Tax Return - Premium Tax Credit page on the CrossLink Tax website.

Also, here are other Premium Tax Credit resources available on the IRS website:

• IRS Premium Tax Credit
• IRS Questions and Answers for the Premium Tax Credit