What is the Affordable Care Act?
The Affordable Care Act (ACA) was enacted on March 23, 2010. Among other things, the ACA's purpose was to expand health care coverage by imposing a mandate on individuals to maintain minimum essential health coverage and create a federal subsidy for the health care premiums for individuals that qualify.
How does the ACA impact taxpayers?
- It creates a requirement (the "individual mandate") that all persons covered by the ACA either have minimum essential health coverage or an exemption from that coverage, or be subject to a shared responsibility payment due to lack of either full-year coverage or an exemption;
- It requires any person who acquired their health coverage through either the federal health insurance marketplace or a state-run exchange to reconcile any subsidy that they received towards paying for the health insurance premiums; and
- It adds certain taxes on some investments (Net Investment Tax) and raises the AGI percentage limitations for medical deductions on Schedule A (Form 1040).
Is there a penalty for failing to maintain healthcare insurance?
There was a penalty/tax for not having health insurance (also called the shared responsibility payment) but that ended in 2018. Beginning in 2019, taxpayers are no longer penalized on their federal tax return for lacking minimum essential coverage.
Note that some states still require minimum healthcare coverage for their residents and will assess fees or penalties on the resident tax return for failure to maintain coverage.
How does the Affordable Care Act affect the tax return?
When any person on the return (taxpayer, spouse, or a dependent), regardless of filing threshold requirements, acquired their health coverage through the federal health insurance marketplace or a state-run exchange, they reconcile any Premium Tax Credit that they may have received with what they were entitled to receive.
For returns prior to 2019, they taxpayer would be penalized if they or anyone else on their tax return was not covered by health insurance during the tax year nor had an allowable exception to the penalty.
What forms need completion in TaxSlayer Pro?
There are two tax forms related to health insurance, and a given return may need to include neither, one, or both depending on the circumstances.
- If anyone in a tax return had marketplace insurance, and they are not a dependent on someone else's return, they should receive Form 1095-A from the health insurance marketplace and the information on this form will need to be entered in Form 8962, Premium Tax Credit to calculate the amount of premium tax credit they were entitled to receive during the year. This amount will be compared with the amount of tax credit they actually did receive, with any overpayment needing to be repaid or any underpayment being added to the return as a refundable credit.
- Prior to tax year 2019, if anyone in a return did not have minimum essential coverage, Form 8965, Health Coverage Exemptions would need to be completed to determine their shared responsibility payment.
What tax document does the taxpayer receive?
A taxpayer with healthcare coverage will receive one of the 1095-series forms after the end of the tax year.
- 1095-A - Health Insurance Marketplace Statement -This is sent when the taxpayer purchased health coverage through the marketplace or state exchange. See here for more information.
- 1095-B - Health Coverage -This is sent to the taxpayer from the Insurance Company and/or employer and contains information about the health coverage that the taxpayer had during the year. See here for more information.
- 1095-C - Employer Provided Health Insurance Coverage and Offer -This is sent to the taxpayer from the employer and contains information about the health coverage that the taxpayer had or was offered during the year. See here for more information.
Note that only the information on Form 1095-A is entered into the tax return. Forms 1095-B and C are from an employer and provide evidence of coverage and months of coverage. Their information isn't directly entered into the tax return but they assist in preparing Form 8965.
When do you allocate policy amounts on Form 1095-A?
There are two scenarios when the policy information on Form 1095-A will need to be specially allocated on Form 8962 so that the correct amount of premium tax credit is calculated.
- One policy shared between multiple taxpayers - If more than one taxpayer is sharing the same marketplace insurance policy, they will need to determine between them how to allocate the premiums and the premium tax credit. They do this in Part IV, Allocation of Policy Amounts.
- One spouse covered in the year of marriage - If one spouse was covered in the year they got married, they can elect to use Part V, Alternative Calculation for Year of Marriage to determine the premium tax credit to which they were entitled rather than the general calculation. (They are typically entitled to less PTC in the year of marriage, so this calculation results in, if not a refund of additional PTC, a smaller amount to repay.)
Note: This article provides general information about the Affordable Care Act and its impact on the tax return preparation process. It is not intended as tax advice.
IRS: Instructions for Form 8962, Premium Tax Credit
IRS: Instructions for Form 8965, Health Coverage Exemptions
IRS: Publication 974, Premium Tax Credit