By now, you should know the law: As of last year, all Americans – both individuals and businesses – are required to carry health insurance coverage under the terms of the Affordable Health Care Act of 2010. If you don’t have at least the minimum amount of health coverage, you could face penalties on your 2014 tax bill.
Because this is the first year that taxpayers have to provide proof of health coverage, many people are confused about what they actually have to do. The good news is that for most people, the process is actually quite simple, and only requires checking off a box on their tax return indicating that they have coverage. However, if you aren’t covered through your employer and purchased health insurance on your own, if you are self-employed, or don’t have insurance at all, satisfying the IRS requirements requires a bit of paperwork.
The Health Insurance Marketplace and Tax Credits
One of the more confusing aspects of the Affordable Care Act and the new Health Insurance Marketplace is determining how much of a tax credit you’re entitled to and what you will actually pay for a policy purchased on the exchange. The current formula determines your health insurance premium based on your projected income for the coming year; your estimated earnings determine the tax credit you’re entitled to that will offset the cost of your plan.
Therefore, those who purchased coverage on the exchange will receive Form 1095-A from the exchange detailing their coverage and tax credits received; the IRS will also receive a copy of this form. If you received a tax credit in advance for 2014, you’ll also have to file Form 8962 to calculate your actual tax credit.
If you did not estimate your 2014 income accurately when you applied for the credit, or your coverage changed throughout the year, you may have to repay the difference in addition to penalties for underreporting income — or you’ll receive an adjustment to the credit.
2014 Transition Period
Because the 2014 tax year was the first year with the new rules, the IRS is not yet requiring businesses or employees to provide documentation of their insurance coverage. Beginning next year, though, employers will have to file reports with the IRS detailing who is covered under their benefits plans, and employees will also receive an individual statement detailing proof of coverage.
Employers who contract with outside insurers will provide form 1095-C to the IRS and employees, while employers that are self-insured or use private insurers will provide form 1095-B. These forms are not required for tax year 2014, but if your employer provides them to you, you can submit them with your return — and expect that you’ll be required to do so going forward.
So What Do I Need to Bring?
While there may not yet be an official form that you have to provide showing that you have health insurance when you file taxes (although you can find tax forms here for just about every other need), your tax preparer is most likely going to ask you to provide some sort of proof of coverage before they check the box on your tax form. If you cannot produce the proof — or you do not have coverage — you may be liable for penalties that increase your bill or lower your refund. The penalty for 2014 is the greater of either one percent of household income, with a maximum penalty the cost of a bronze health, or $95 per person (or $47.50 for a child under age 18).
Therefore, if you did not receive a statement from your employer, when you visit your tax preparer bring along copies of your health insurance bills, a certificate of coverage, a Social Security statement, or other official document that proves that you have had adequate coverage in 2014. Without it, your preparer is unlikely to just “take your word for it,” and lying on your return constitutes fraud and comes with stiff penalties.
In certain limited circumstances, you may qualify for an exemption from the requirement to have health insurance. Most exemptions are limited to hardship situations, such as you are homeless or have significant expenses in certain categories, including medical. In most cases, exemptions are only temporary (a few months) and limit penalties for not having insurance, but don’t remove the health insurance requirement entirely.
Because 2014 is the first year that the ACA was in full effect and penalties for not having insurance will be levied, there is bound to be confusion. If you purchased insurance on the exchange, or do not have coverage, it’s best to work with a qualified tax professional to ensure that you file to correct paperwork and do not pay more than you have to.