Get in shape for the Affordable Care Act’s new tax requirements

Taxpayers expect to get health care advice from their doctors and mothers. They may not expect health insurance advice from tax advisors. That is the new reality under the Affordable Care Act (ACA) which made health care a tax issue. Qualifying taxpayers get financial help for their health insurance premiums through a premium tax credit. And taxpayers without health insurance pay a penalty or, if they qualify, claim an exemption on their tax return.

Taxpayers can prepare for the Affordable Care Act’s impact with these five tips:


1.   Understand what the ACA requires in the taxpayer’s unique situation.

It’s important taxpayers understand what the ACA means for their individual situation. The ACA will affect every taxpayer, but not in the same way or to the same degree:

  • Those who had health insurance through an employer, Medicaid, Medicare or other government program for all 2014 will have to check a box on their tax return stating they had health insurance.
  • Anyone who enrolled in a federal or state Marketplace health insurance plan and received the Advance Premium Tax Credit to help lower the cost of their monthly premium will have to reconcile the advance and determine if they can claim an additional Premium Tax Credit on their return or must repay some or the entire advance.
  • Anyone who did not have health insurance for themselves and their dependents, for all or part of 2014, may face an ACA tax penalty. They will either have to pay it or, if they are eligible, claim an exemption, on the tax return.

2.   Prepare documents.

New tax laws mean new tax documents. Taxpayers who enrolled in a Marketplace insurance plan will receive a new form called the 1095-A. They will need this form to file their tax return and reconcile their Premium Tax Credit. It reports information, similar to a W-2, and should arrive in the mail by the end of January. Preview the new form here.

Taxpayers without health insurance who want to apply for an exemption from the penalty may be able to claim an exemption on their tax return, or they may need to file a Marketplace application and provide the Marketplace documents that show personal, financial or medical hardship. This could mean providing a copy of an eviction or foreclosure notice, death certificate, death notice from a newspaper, police or fire report, insurance claim, bankruptcy filing, medical bills, medical support order or Medicaid and CHIP coverage denials. Read a full list of exemptions here and use this calculator to discover if a specific situation qualifies for an exemption.


3.   Calculate the cost the ACA will have on a tax refund.

Many taxpayers will be surprised at what the ACA costs them on their tax return. As many as 66 percent of taxpayers did not know the Advance Premium Tax Credit could impact the size of their tax refund. The earlier taxpayers know what financial impact the ACA will have on them, the better they can prepare for any unexpected costs or adjust their tax and health benefits for 2015.

When taxpayers enrolled in a Marketplace health insurance plan, they had to provide an estimate of their household income. This estimate, along with their family size, was used to determine how much Advance Premium Tax Credit they received.

Now that 2014 is over, if a taxpayer’s actual household income was higher than they estimated, they may have to pay back some or all of the credit they received. This will likely reduce the amount of their tax refund or add to their taxes due.

If a taxpayer’s actual household income was lower than they estimated, they may claim a refundable credit on their tax return.

For those that did not get health insurance in 2014, one of the biggest misconceptions about the penalty for not having insurance is that it is just $95. That’s only partially true. It’s actually whichever amount is greater: $95 per adult member of a household ($47.50 for dependents under 18) or 1 percent of household taxable income less the taxpayer’s filing threshold.


4.   Enroll in coverage for 2015 to avoid steeper penalties.

Not only could penalties for 2014 be higher than the $95 that many people are expecting, but the penalties will increase for taxpayers without insurance over the next two years. In 2015, the tax penalty will increase to $325 per adult or 2 percent of household income less the filing threshold. By 2016 the tax penalty will be $695 per adult or 2.5 percent of household income less the filing threshold.


To avoid these steeper penalties, taxpayers can enroll in health insurance plans through the Marketplace.


Reynold Alabre is a Sr. Accountant and a Tax Advisor at H&R Block. He’s the Owner of the Rey Group, and a member of the BRBC in Bridgeport. Rey has been providing expert tax advice and preparation support for taxpayers for over a decade.


Rey Alabre’s contact info is listed below for more information.

Office Address: Bridgeport H&R Block 1375 Madison Ave. Bridgeport CT 06606

Office Phone Number: 203-908-3309

reynold.alabre@hrblock.com