Obamacare could affect your federal taxes this year and beyond. Beginning this tax season (2014), you may notice some changes on your tax return related to the Affordable Care Act, commonly referred to as just ACA or Obamacare.

In order to ensure that you understand how the ACA works, we have created the following guide in order to inform you about the potential impact to your tax situation this year. In this article, you’ll find specific information around:

(a) How the ACA might affect your taxes,
(b) Which new forms you’ll need to look for, and
(c) What documentation we’ll need from you in order to complete your tax return.

Did you have Minimum Essential Coverage during 2014?

It is important that your tax preparer is informed as to whether you had minimum coverage during the tax year. To avoid the penalty for being uncovered you must have insurance that qualifies as minimum Essential Coverage. Having Minimum Essential Coverage means you’re covered by any of the following types of plans:

• Any Marketplace plan, or any individual insurance plan you already have
• Any Marketplace plan, or any individual insurance plan you already have
• Any employer plan (including COBRA plans, with or without “grandfathered” status)
• Retiree health plans
• Medicare
• Medicaid
• The Children’s Health Insurance Program (CHIP)
• TRICARE (for current service members and military retirees, their families, and survivors)
• Veterans health care programs (including the Veterans Health Care Program, VA Civilian Health and Medical Program (CHAMPVA), and Spina Bifida Health Care Benefits Program)
• Peace Corps Volunteer plans
• Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014

 What New Tax Forms Do you Expect?

• Form 1095-C: Your employer may provide a separate Form 1095-C to you and to the IRS, which provides information about your plan and who was covered.

• Form 1095-B: Private insurers and self-funded plans may provide each policyholder and the IRS with information summarizing the coverage provided on Form 1095-B.

Note:
It is important to note, however, that this year is  a transition period for Forms 1095-B and 1095-C, so these forms are not a requirement for tax year 2014.

What form do you need to get your taxes done?

• All of the usual documentation you provide every year during taxes.
• Form 1095-C or 1095-B, if you received it from your employer or private insurer.

 Did you purchase a health plan through a Health Insurance Marketplace?

It is important to let us know, prior to tax preparation that you purchased your plan through a Health Insurance Marketplace, also known as a Health Exchange.

If you overestimated your 2014 household income when you applied for the tax subsidy, you will receive the remainder of the subsidy in the form of a refundable credit, which will increase the refund amount or decrease the amount owed on your tax return. But if you earn more than you projected, you will have to pay a portion or “vomit” all of the subsidy back, which will decrease the refund amount or increase the amount owed on your tax return.

In addition to a change in income, make sure to report all life changes (i.e. getting married or having a child) through your Marketplace to ensure your subsidy is correct.

New Tax Forms to Expect

• Form 1095-A: If you purchased insurance through the Health Insurance Marketplace you will receive a new form, Form 1095-A, which will show details of your insurance coverage including the effective date, amount of premium and the advance premium tax credit.

• Form 8962: If you are eligible to receive a premium tax credit in 2014, information about your advance premium tax credit will be reported and the actual premium tax credit will be determined on Form 8962.

What I need from you

All of the usual documentation you provide

• Form 1095-A, if you purchased health insurance through the Health Insurance Marketplace

 What If I don’t have health insurance?

Under the ACA, individuals who did not have health insurance for more than three months in 2014 must pay a tax penalty. However, according to Congressional Budget Office, an estimated 20 million Americans may qualify to waive that penalty this year. To find out if you qualify for an exemption, visit www.healthcare.gov.

How do I know if I qualify for an exemption?
The Affordable Care Act recognizes there are legitimate reasons people may be exempt from paying a tax penalty for not having health insurance.

Some of the common exemption reasons include:

• Can’t afford health insurance; the lowest-priced coverage available would cost more than 8 percent of their household income
• Had difficulty signing up for health insurance through a state or federal marketplace
• Had medical expenses you couldn’t pay in the last 24 months that resulted in substantial debt
• Had an individual insurance plan cancelled, and believe other marketplace plans are unaffordable
• Received a shut off notice from a utility company

For the full list of exemptions, please check www.healthcare.gov/fees-exemptions/exemptions-from-the-fee/

If you’ve been uninsured for fewer than three consecutive months of the year, you don’t need to apply for an exemption. This will be handled when we file your 2014 taxes. Also, if you are not required to file a tax return because your income is too low, you don’t need to apply for an exemption.

If you believe you qualify for one of the exemptions, please notify us as soon as possible, so we will be able to let you know whether you can claim it on your tax return or apply through the Health Insurance Marketplace along with the required documentation in certain cases. Different exemptions require different forms, so be sure to apply with the correct document. You can find and print all of the forms at healthcare.gov/exemptions.

For those exemptions that should be filed through the Health Insurance Marketplace, the approval process can take a couple of weeks, so don’t wait until we file your taxes to apply for an exemption. Instead, submit your application as soon as possible. That way, it will be documented and processed in time, and we can file your tax return as soon as the IRS begins accepting returns in January.

What I need from you

All of the usual documentation you provide

• If you are getting an exemption through the Health Insurance Marketplace (also called an exchange) and not claiming the exemption directly on the tax return, you will also need to provide the exemption certificate number.

What if I’m not exempt?
If you don’t have health insurance and don’t qualify for an exemption, you will have to pay a penalty when you file for your 2014 tax return. If that’s the case, don’t worry: We will help you calculate the exact amount of your tax penalty and work to identify any qualifying deductions that may help offset this fee.

The tax penalty, also referred to as the “individual shared responsibility payment”, is based on your family size and income. The penalty will be prorated based on the number of months you are uninsured and will increase each year.

For tax year 2014, the annual one-time tax penalty will be $95 per adult, or one percent of your total income, whichever is greater. For uninsured children in your family, the penalty is $47.50 per child, with a family maximum of $285 for the year. The tax penalty is assessed on your 2014 tax return.

Each year following 2014, the penalty increases — in 2015 the penalty is $325 per person, $162.50 per child — or two percent of your income. By 2016, the penalty rises to $695 per adult, $347.50 per child — or 2.5 percent of your household income.

We know that the tax filing process can sometimes be overwhelming and that the Affordable Care Act could potentially further complicate the process. Please know that we are here to help you navigate these changes.

PREMIUM TAX CREDIT (PTC)

• The Premium Tax Credit applies to taxpayers who enrolled in a qualified health plan offered through a Marketplace.
• Tax Payers will receive a Form 1095-A, Health Insurance Marketplace Statement, which must be provided to the tax preparer before being able to file a tax return.
• Information included on Form 1095-A will flow to Form 8962 in order to reconcile the amount of premium tax credit.
• Advance payment of the premium tax credit (APTC) is a payment made for coverage during the year to the insurance provider that pays for part or all of the premiums for the coverage of the taxpayer or an individual in their tax family.
• The taxpayer must file Form 8962 to reconcile any Advance Premium Tax Credit (APTC) against the Premium Tax Credit (PTC) eligible for the tax year. If the APTC is more than the PTC, the taxpayer will have excess APTC and must repay the excess, subject to certain limitations. If PTC is more than the APTC, the taxpayer can reduce their tax payment or increase their refund by the difference.

INDIVIDUAL SHARED RESPONSIBILITY PAYMENT (SRP)

Beginning in 2014, your clients must have health care coverage, have a health coverage exemption, or make a shared responsibility payment with their tax return. (For clients subject to the individual shared responsibility payment, they may be eligible for the exemptions below.)

• Minimum essential coverage is coverage under a government-sponsored program, coverage from an employer, a plan that they purchased in the individual market, or certain other coverage.
• For 2014, the annual shared responsibility payment amount is the greater of: a) 1% of household income above filing threshold, or b) Family’s flat dollar amount, $95 per adult and $47.50 per child, limited to family maximum of $285

Contact FirstrateTaxes.com for any questions you may have.