There are a number of tax changes now in effect for 2015 that could affect your individual return this year -- particularly the new Obamacare penalties that “go live” this tax season.
To help you get prepared, here is some need-to-know-information about health insurance and your 2015 tax return.
Additional paperwork required due to Affordable Care Act
Everyone is required to report their healthcare status this tax season on Form 1040 (the individual tax return) and there are several new forms that you may be required to complete related to your health insurance coverage. Form 1095 is very important because it states the payments you have made for your health insurance, and it will be used to determine if you qualify for the Premium Tax Credit (PTC), or if you owe money due to overpayments of the PTC (reported on Form 8962).
It also shows how much you paid versus how much you were entitled to in order to figure out how much you may need to pay back to the IRS. If you received Form 1095-A, 1095-B, or 1095-C in the mail, be sure to keep it with your tax documents so you can report this information on your tax return.
Obamacare penalties will kick in this tax season
Consumers that didn’t purchase health insurance will face a penalty of $95 or 1% of their annual income, whichever is greater. For kids, the penalty is $47.50 per child, up to $285 for a family.
If you’re not covered for the entire year, you’ll pay the full penalty. If you only lack coverage for part of the year, you’ll pay 1/12 of the penalty per month you were without coverage. And if you only lacked coverage for three months or less, you won’t pay a penalty.
You’ll pay the penalty when you file the federal income tax return for the year for which you’re seeking coverage. Most people fill out their 2014 tax returns early in 2015 and their 2015 tax returns early in 2016. If you don’t pay the fee, the IRS will hold back the amount of the fee from any future tax refunds. There are no liens, levies, or criminal penalties for failing to pay the fee.
Advance tax credits could impact your refund
If a tax credit lowered your monthly premiums for health insurance in 2014, you will use your Form 1095-A to input some basic information when you file your taxes.
When you signed up for health insurance, you had to estimate your household income for 2014. Your estimated household income determined the size of your tax credit. Now that tax time is here, you need to compare your estimated household income with your actual income – and this could impact the final amount of your premium tax credit.
If your household income or household size changed throughout the year, it could impact the final amount of your tax credit. You may see a smaller refund or owe money back if you underestimated your income. You may also get a bigger refund if you overestimated you income.
If you owe money back, there are several repayment options available. For example, if you are unable to pay immediately, you may be eligible for a payment plan or an installment agreement. If you did not receive advance payments of the premium tax credit to lower your monthly premiums in the Marketplace, you can visit HealthCare.gov/taxes/tools/ to get information you’ll need to enter into your tax forms to see if you might qualify.
You may qualify for an exemption if you had partial coverage in 2014
If your Marketplace coverage started part way through 2014 and you were uninsured earlier in the year, or if you were uninsured for only a short period of time during the year, you may be eligible for an exemption from the requirement to have health coverage. You can claim the exemption on your tax return when you file. The process is fast and easy. You’ll simply select the exemption that applies to you and enter the corresponding code.
You may also qualify for an exemption if you couldn’t afford health insurance or met other similar conditions
While those who can afford health coverage but chose not to buy it may have to pay a fee, individuals who could not afford coverage or met other conditions can receive an exemption. If you qualify, you won’t have to pay a fee.
You can claim most exemptions on your tax return, but some exemptions are only available through the Marketplace. You can see a complete list of exemptions here. When you file your taxes, you will enter information about the months you had coverage and any exemptions you qualify for on your tax forms.
Deducting your health insurance costs
As a self-employed individual, if you pay for your own (and your spouse’s and dependents’) health insurance, you can deduct all of your health, dental, and long-term care insurance premiums. However, you can’t deduct your insurance costs if you happen to be eligible for health coverage through your spouse’s employer. If you are self-employed and have a profit, you can directly deduct (no limitations) the full amount up to this profit.
Howard Samuels is the Tax Managing Partner in KDMS LLC, a certified public accounting firm providing accounting, bookkeeping, and tax services for individuals and small-to-medium sized businesses. Howard has a master’s degree in Taxation from Pace University and holds his undergraduate degree in accounting from Syracuse University. Howard has been practicing accounting and tax for 22 years and has offices in NYC and NJ.