In addition to the normal thrills and chills of the income tax filing season, this year consumers will have the added excitement of figuring out how the health law figures in their 2014 taxes.
The good news is that for most people the only change to their normal tax filing routine will be to check the box on their Form 1040 that says they had health insurance all year.
“Someone who had employer-based coverage or Medicaid or Medicare, that’s all they have to do,” says Tricia Brooks, a senior fellow at Georgetown University’s Center for Children and Families.
The law requires people to have “minimum essential coverage,” but most types of insurance qualify.
But for others, here are several situations to keep in mind.
If you were uninsured for some or all of the year
If you had health insurance for only part of 2014 or didn’t have coverage at all, it’s a bit more complicated. In that case, you’ll have to file Form 8965, which allows you to claim an exemption from the requirement to have insurance or calculate your penalty for the months that you weren’t covered.
On page 2 of the instructions for Form 8965 you’ll see a lengthy list of the coverage exemptions for which you may qualify. If your income is below the filing threshold ($10,150 for an individual in 2014), for example, you’re exempt. Likewise if coverage was unaffordable because it would have cost more than 8 percent of your household income, or you experienced a hardship that prevented you from buying a marketplace plan, or you had a short coverage gap of less than three consecutive months. These are just some of the circumstances that would allow you to avoid the penalty.
In addition, you don’t have to pay a penalty if you live in a state that didn’t expand Medicaid to adults with incomes up to 138 percent of the federal poverty level $16,104.60 for an individual in 2013) and your income falls below that level.
Some of the exemptions have to be granted by the health insurance marketplace, but many can be claimed right on your tax return. The tax form instructions spell out where to claim each type of exemption.
If you do have to go to the marketplace to get an exemption, be aware that it may take two weeks or more to process the application. Act promptly if you want to avoid bumping up against the April 15 filing deadline, says Timothy Jost, a law professor at Washington and Lee University who is an expert on the health law.
If you don’t qualify for a coverage exemption
If none of the exemptions apply to you, you’ll owe a penalty of either $95 or 1 percent of your income above the tax filing threshold, whichever is greater. The penalty will be prorated if you had coverage for at least part of the year. The amount of the penalty is capped at the national average premium for a bronze level plan, or $2,448 for an individual in 2014.
The instructions for Form 8965 include a worksheet to calculate the amount of your penalty.
If you received a premium tax credit for a marketplace plan
Under the health law, people with incomes between 100 and 400 percent of the federal poverty level ($11,490 to $45,960 for an individual in 2013) could qualify for premium tax credits for 2014 coverage bought on the exchanges. If consumers wished, the tax credit was payable in advance directly to the insurer. Many chose that option.
The marketplace determined the amount of premium tax credit people were eligible for based on their estimated income for 2014. At tax time those estimates will be reconciled against actual income. People whose actual income was lower than they estimated may have received too little in advance premium tax credits. They can claim the amount they’re owed as a tax refund.
People whose income was higher than estimated and received too much in advance premium tax credits will generally have to pay some or all of it back. The amount that must be repaid is capped based on a sliding income scale, but people whose income is 400 percent of poverty or higher will have to pay the entire amount of any tax credit back.
If you bought a plan on the marketplace, you’ll receive a Form 1095-A from your state marketplace by Jan. 31 that spells out how much your insurer received in advance premium tax credits. You’ll use that information to complete Form 8962 to reconcile how much you received against the amount you should have received.
Assuming the information on the form is correct, “It should be easy to reconcile,” says Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities. Tax software programs and tax preparers should know how to make the calculations, she said.
In addition to using commercial tax software or hiring tax preparer, many lower income consumers and seniors can get free tax preparation assistance through the IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs.
Despite resources to help consumers, this first filing season is likely to be bumpy, particularly for people who have complicated family situations or who receive inaccurate information from the marketplace.
“There is just so much confusion out there,” says Jennifer Tolbert, director of state health reform at the Kaiser Family Foundation (KHN is an editorially independent program of the foundation.). “People are going to see these forms and not have any idea what they’re supposed to do with them.”