Beginning with the 2019 tax year (for which tax returns are filed in early 2020), the Shared Responsibility Payment or penalty for not having minimum essential health coverage no longer applies. As a result, a taxpayer who does not have health coverage in 2019 or later, does not need an exemption to avoid the penalty and Affordability Worksheet is not in the tax program in for tax years after 2018.
Form 8965 - Health Coverage Exemptions was retired starting in 2019 and is no longer used. The information that follows should be used for tax years before 2019.
When determining whether an unaffordable coverage exemption will apply to a taxpayer (or another member of the tax household) for one or more months of the year, the Affordability Worksheet contained in the Instructions for Form 8965 should be completed before claiming this coverage exemption. Generally, coverage is considered unaffordable if the individual's 'required contribution'is more than 8.16% (2017 amount) of their Household Income.
This Affordability Worksheet can (starting in the 2017 program) be completed in TaxSlayer Pro by accessing from the Main Menu of the Tax Return (Form 1040) the following:
- Other Taxes Menu
- Health Coverage Exemptions/Responsibility Payment (8965)
- Coverage Affordability Worksheet
- Coverage Affordability Worksheet Menu
Step One in completing the Affordability Worksheet is to calculate the Affordability Threshold which is 8.16% of Household Income.the tax program will automatically pull into the Household Income calculation all amounts that have been previously entered into the tax return on behalf of the taxpayer and/or spouse. However, the user may also be required to enter certain less common adjustments into the Household Income calculation because these items have not otherwise been entered into the tax return. These items are either related to income received by a dependent claimed on the tax return or the amount wages were reduced through a salary reduction arrangement to pay premiums. These adjustments to Household Income are made on the Household Income Menu and are as follows:
- For each dependent on the tax return that was required to file their own tax return due to the dependent's income meeting the income tax return filing threshold, enter on the designated entry field (1) the dependent's Adjusted Gross Income from their tax return and (2) any Tax Exempt Income reported on the dependent's tax return.
- For each dependent on the tax return that was required to file their own tax return due to the dependent's income meeting the income tax return filing threshold enter on the designated entry field any social security benefits received by the dependent but not subject to tax on the dependent's tax return.
- The amount that the taxpayer, spouse or any member of the tax household wages were reduced through a salary reduction arrangement to pay all or a portion of the premiums for employer-sponsored coverage for any part of the year.
Once Household Income has been ascertained,the tax program will calculate the Affordability Threshold amount, and this amount will be displayed on the Coverage Affordability Worksheet Menu as well as carried to Section A of the Affordability Worksheet. This annual Affordability Threshold amount becomes the benchmark (8.16% of Household Income) for determining whether the annualized cost of health coverage is considered unaffordable for any person in the tax household for any month of the year.
Step Two in completing the Affordability Worksheet is to determine the required annualized contribution amounts for each month for each individual in the tax household that is seeking to claim the Unaffordable Coverage Exemption. This calculation is done from the Coverage Affordability Worksheet Menu by selecting Edit Household Required Annualized Contribution Amounts.
The user selects the first person on the return that may be eligible to claim the unaffordability exemption. the tax program will automatically pull the Name, Social Security Number and Birth Date of the selected individual to this menu and to Section B of the Affordability Worksheet (and if applicable to Part III of Form 8965 - Health Coverage Exemptions), but the user has to enter the correct annualized required contribution amounts. When the user selects Required Contributions, the user gets an entry screen that has the following instructions which are taken directly from the Affordability Worksheet:
Enter the required annual contribution amount that the individual must pay for coverage for the first situation below that applies to this individual. Enter the annualized required contribution for EACH MONTH that applies to this individual:
- Lowest cost self-only policy offered to each member of your tax household by his/her employer.
- Lowest cost of family policy offered by your employer or your spouse’s employer.
- Amount from the Marketplace Coverage Affordability Worksheet.
Immediately below these instructions is the entry menu for Required Annualized Contributions, which is where the user enters the Required Annualized Contributions for each month that this individual did not have health coverage. The amount that will be entered for any given month will be determined based on the first situation that applies to the individual from the above list for that month. Any amounts entered for this individual for any month will automatically pull to Section B of the Affordability Worksheet. It is possible that different situations will apply to different months if the individual's situation changed during the year. For example an individual may have been offered employer sponsored coverage for only part of the year or lacked coverage for only part of the year.
This step would then be repeated for each person in the tax household seeking to claim the Unaffordability Exemption.
To assist the user in entering Required Annualized Contribution amounts, each of the three situations described on the Affordability Worksheet are explained below:
Lowest Cost self-only policy offered to each member of your tax household by his/her employer. In the first situation, the individual seeking to claim the Unaffordability Exemption had minimum essential health coverage offered to that individual for at least one month by an employer. This offer of coverage and the employee's required monthly contribution amount would be found on Part II, Lines 14 and 15 of Form 1095-C Employer Provided Health Insurance Offer and Coverage which an employer should provided to the employee. For any month which an individual was offered self-only health coverage, this annualized required contribution amount (monthly required amount on Line 15 of Form 1095-C times twelve) would be entered as the Required Annualized Contribution.
Lowest Cost family policy offered by your employer or your spouse's employer. In the second situation, the individual seeking to claim the Unaffordability Exemption had access to family health coverage for at least one month by the taxpayer's employer or the spouse's employer. This offer of coverage and the required monthly contribution amount can be found on Part II, Lines 14 and 15 of Form 1095-C Employer Provided Health Insurance Offer and Coverage which an employer should provided to the employee. For any month which an individual was offered family health coverage, the annualized required contribution amount (monthly required amount on Line 15 of Form 1095-C times twelve) should be entered as the Required Annualized Contribution.
Amount from the Marketplace Coverage Affordability Worksheet. In the third situation, the individual seeking to claim the Unaffordability Exemption did not have access to either self-only or family health coverage for at least one month from an employer sponsored plan. In this situation, the individual would use the Marketplace Affordability Worksheet to get the annualized cost of coverage for any month that they did not have access to an employer sponsored plan. This Marketplace Coverage Affordability Worksheet is accessed from the Coverage Affordability Worksheet Menu.
At the Marketplace Coverage Affordability Worksheet Menu, the user will enter the Monthly Premium Cost for the Lowest Cost Bronze Plan and the Second Lowest Cost Silver Plan that the individual(s) seeking to claim the Unaffordability Exemption could have obtained through the Federal Marketplace (Healthcare.gov). On the Marketplace Coverage Affordability Worksheet Menu, there is a Bronze/Silver Lookup tool that allows the user to link to the Federal Marketplace. Here they can enter the appropriate information relevant to the taxpayer and other members of the tax household necessary to get the monthly cost of the bronze and silver health plans that would have been available in the specific location.
In the event that the taxpayer resides in a rating area where no bronze level plan is served by the Marketplace, that individual should substitute for the Lowest Cost Bronze Plan, the lowest cost Silver (or Gold) plan that is serving their Marketplace when completing the Marketplace Coverage Affordability Worksheet. See Notice 2017-74 for further information on using a substitute plan when no bronze level plan is serving the rating area where the individual(s) reside.
Once this Marketplace Coverage Affordability Worksheet Menu is completed, the Required Annualized Contribution amount will be calculated and this amount will display when the user returns to the Required Contribution Menu.
Once the Coverage Affordability Worksheet has been completed, the tax program will automatically apply the Unaffordability Coverage Exemption on Form 8965 for each month that the individual is eligible to receive the exemption based on the information entered.
NOTE: This is a guide on entering the Affordability Worksheet into the TaxSlayer Pro program. This is not intended as tax advice.