President Barack Obama’s signature health care law will bring a new twist to tax-filing in 2015, a year in which much else will seem familiar when you’re working on your return.
It’s been a quiet tax year in terms of congressional action, says Bob Meighan, vice president of customer advocacy at TurboTax, the tax-preparation software company.
Sure, there have been adjustments for inflation in the tax tables, standard deduction and value of each exemption. But what could have been a stunner — the expiration of a series of popular tax breaks — was forestalled by Congress in a last-minute move before it adjourned in 2014.
Still, this is the first time Americans will experience the complex connections between the Affordable Care Act and taxes.
Here’s a rundown of how all this will work:
People with insurance
“For the vast majority of Americans, tax filing under the Affordable Care Act will be as simple as checking a box to show they had health coverage all year,” said Treasury Secretary Jacob J. Lew.
On Line 61 of the 1040 tax form, you must indicate that you, your spouse (if you’re filing a joint return) and your dependents had health insurance last year.
If you bought health insurance through the health insurance marketplace, you will receive IRS Form 1095-A, Health Insurance Marketplace Statement, from the exchange. It will list which members of the household were covered and for how long, as well as premium costs and any advance payment you received for premium tax credits.
If you got the tax credit, you will need to file Form 8962, Premium Tax Credit, with your tax return. You will need information from the 1095-A form to fill out Form 8962.
Penalty exemption
“A fraction of taxpayers will take different steps, like claiming an exemption if they could not afford insurance,” Lew said.
Those seeking an exemption must file Form 8965, Health Coverage Exemptions, with their tax return.
If you pay a penalty
“A smaller fraction of taxpayers will pay a fee if they made a choice to not obtain coverage they could afford,” Lew said.
The penalty for 2014 is $95 per person (with a family maximum of $285) or 1 percent of your yearly income, whichever is higher. Only the amount of income above the tax filing threshold, about $10,000 for an individual, is used to calculate the penalty. Your filing threshold is the minimum amount of gross income a person your age and filing status must make to be required to file a tax return.
“Many people still believe that the penalty is $95 per person,” said Kathy Pickering, executive director of the H&R Block Tax Institute. “If you’ve got a couple that’s making $65,000 a year, and the spouse didn’t get insurance, now they’re thinking it’s $95. But when they come in to do the calculation, they’re going to learn that the penalty is actually $447, and that’s a lot higher than the $95 they might have been expecting.”
The penalty for not having health insurance increases every year. For 2015, it will be $325 per person with a maximum of $975 for a family, or 2 percent of your yearly income.
If you received advance on premium tax credit
This is the part that could trip up many taxpayers.
The premium tax credit is for certain consumers who bought health insurance through the health insurance marketplace, and it reduces the amount of tax owed. The government makes advance payments of the credit to help consumers pay a share of their monthly health insurance premiums.
The advance payments are based on an estimate of the credit that you will claim on this year’s tax return. That estimate is based on a formula that takes into account income, household size and health insurance costs in your community.
Those who got too much of a subsidy will see their tax refunds reduced by the IRS. For example, you will get dinged if your income went up during the year and you didn’t report that to HealthCare.gov or to your health insurance exchange.
If you received less of a subsidy than you were entitled to, the IRS will owe you instead.
“When people went to the marketplace to sign up for insurance, at that point, they were estimating what they thought their 2014 income was going to be,” Pickering said. “Now, they’re filing their tax return with what it actually was, and in many cases, it’s going to be different because life events change your household income.
You may have gotten a better job, lost your job, gotten married, got divorced. Some will be taken aback if they have to repay the credit.
“When they were enrolling in the insurance, they thought of that as just a discount on their insurance premium,” Pickering said. “They didn’t think of it as this is something they might have to pay back.”
Don’t expect too much help from the IRS.
Commissioner John Koskinen warned Congress that budget cuts could hamper taxpayer services this filing season.
The forms
W-2: If you had health insurance through an employer last year, your health insurance coverage would be reported on your W-2 Form and you’d check a box. About 75 percent to 80 percent of tax filers would fall under the just check-a-box arena.
1040: Tax filers accustomed to using a 1040EZ will no longer be able to do that if they got a tax credit. Reporting your health insurance coverage begins on line 61 of Form 1040.
Form 1095-A: If you received health insurance through the marketplace, you should get this form in the mail. If Form 1095-A is lost, never shows up, or is wrong, taxpayers must contact their marketplace directly.
Form 8962: Needed if you got the Premium Tax Credit or might be entitled one. It will determine whether you got too much of an advance credit payment and have to repay some of it, or if you didn’t apply and might be eligible for the premium tax credit on your return.
Form 8965: Lists the possible exemptions and lets you claim the one that might apply. It’s also where you figure out your penalty if you didn’t have coverage for all or part of 2014.
For more help
IRS Publication 17, Tax Guide 2014 for Individuals: www.irs.gov/pub/irs-pdf/p17.pdf
The IRS Web page devoted to the Affordable Care Act: www.irs.gov/Affordable-Care-Act
How to request a 1095-A if you didn’t receive one: www. HealthCare.gov
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