Tax Time and the Affordable Care Act

As we prepare for one of the annual rites of spring, individual tax filing, a new wrinkle has been thrown into your tax return. Beginning with your tax filing this year, for tax year 2014, you must now disclose certain information so the Internal Revenue Service can determine whether or not you maintain health insurance. This requires you to show either proof of  health  insurance or that you have obtained an exemption.

One new box on your tax return will be line 61 of the Form 1040. This line requires you to check a box stating whether you have health insurance or not and, if not, a penalty will be assessed against you if you did not have health insurance for more than three months in 2014. This penalty is the greater of 1% of modified adjusted gross income or $95 per adult, $47.50 per child under the age of 18, with a family maximum of $285.  This penalty would be applied to your refund, if any, or would reflect in the amount of tax that you owe.

There are certain exemptions from paying the penalty, but for each exemption you must obtain an exemption certificate from the Marketplace. These exemptions include, but are not limited to, financial exemptions, such as insurance costing more than 8% of your household income, you make insufficient money to file a tax return, you are a member of a federally recognized tribe or religious sect which objects to health insurance, you’re incarcerated, living abroad, or have one of the following other hardships: are homeless, faced eviction or foreclosure in the past 6 months, were the victim of a natural disaster, filed for bankruptcy in the previous six months, had excessive medical expenses or necessary expenses for yourself or a family member, you were determined ineligible for Medicaid due to your state not expanding Medicaid, and your individual insurance plan was canceled.

There is one other additional twist for individuals filing a tax return and whom obtained a subsidy to purchase their insurance. In determining whether an individual or family qualified for a subsidy, the government used a family’s 2012 tax return. However, in 2014, that same family may find that it made more or less money than it did in 2012. In the case where that family made less money than in 2012, it would be entitled to a refund on the health insurance premiums it paid; conversely, if that family made more money in 2014, it may find that it actually owes more toward its insurance than it did in previous years.

All in all, reporting requirements under the Affordable Care Act add another wrinkle to the filing of your personal tax return. Some taxpayers may be in for a shock when they complete their tax return and discover they are being assessed penalties for not having health insurance or have to pay more for their health insurance because their financial circumstances have changed. If you need assistance in navigating the legal complexities of the Affordable Care Act, please do not hesitate to contact the attorneys at Lavelle Law, Ltd.