By Chuck Randolph
The Affordable Care Act requires that beginning January 2014 all taxpayers, and the taxpayer’s dependents, must have qualified health plan coverage unless they qualify for a specific exemption. This coverage is also referred to as minimum essential coverage. Generally, most employer sponsored health plans satisfy the requirements for qualified health plan coverage. Taxpayers are required to acquire health coverage if coverage is not available through their employer. An excise tax must be paid on the taxpayer’s 2014 individual income tax return if qualified coverage is not acquired. This tax is referred to as the individual shared responsibility tax.
Exemptions from the tax include the following:
- Certain individuals who are not citizens.
- Certain religious exemptions.
- If household income is below the threshold for filing an income tax returns. Household income includes gross income of all individuals for whom a personal exemption is claimed and dependents who are required to file an income tax return.
- The cost of qualified health plan coverage exceeds 8% of an individual’s household income.
- Failing to have qualified health plan coverage for less than 3 months.
A complete list of exemptions and explanations can be found here. Certificates of exemption from the shared responsibility provision can be acquired through the Health Insurance Marketplace. Please visit the Healthcare Marketplace for more information. Taxpayers who qualify for an exemption must provide the statement from the Marketplace to their tax preparer for proper reporting.
The individual shared responsibility tax is the greater of the following:
- A percentage of household income above the filing threshold for the filing status or a flat dollar amount.
- The annual payment amount is capped at the national average for the bronze level health plan available through the Marketplace.
- The taxpayer owes 1/12th of the annual payment for each month an exemption is not available or no health insurance coverage is acquired. If the taxpayer has an exemption or health insurance coverage for 1 day of a month, they as considered as exempt or covered for the entire month.
Generally, a taxpayer is liable for the tax on anyone who is eligible to be claimed as a dependent on Form 1040 whether or not the taxpayer actually claims the dependency exemption. The tax is reported on the taxpayer’s individual income tax return.
A premium tax credit is available to help offset health coverage for low and moderate income taxpayers who purchase coverage through the Marketplace. The credit is available to individuals and families with incomes between 100% and 400% of the federal poverty line. The Marketplace will estimate the premium tax credit that may be available to the taxpayer by using information the taxpayer provides about family composition and projected family income.
The credit can be paid in advance to the insurance company to lower the monthly premium or it can be claimed in full on Form 1040. The amount of credit received is reconciled to the amount of credit eligible to be claimed on Form 8962. If the advanced payment made on behalf of the taxpayer exceeds the amount of credit which may be claimed, the excess will either reduce a refund or will be an additional tax owed. Additional tax owed as a result of excess advance payments are subject to limitations based on household income. The credit is not available for anyone eligible for other minimum essential coverage including Medicare or Medicaid.