How the Individual Shared Responsibility and Premium Tax Credit Provisions of the Affordable Care Act Impact Household Tax Reporting

The 2014 tax year is the first for which individual taxpayers are required to report healthcare coverage under the individual shared responsibility provision of the Affordable Care Act and low income taxpayers without affordable coverage are allowed the premium tax credit. This Affordable Care Act requires individuals to maintain coverage of minimum required healthcare insurance, for each month of the year, unless they qualify for one of the listed exemptions. Non-exempted taxpayers who fail to maintain coverage for each month of the year are subject to tax penalty, which grows between tax years 2014 and 2016. This new era of regulation brings with it additional reporting requirements for households.
For households that maintain the required minimum insurance coverage during each month of the year and do not qualify for an insurance premium tax credit, there is some good news. In this case households report full-year coverage by simply checking a box on line 61 of their year-end form 1040. No additional reporting is required.
Households with members who qualify for one of the individual shared responsibility exemptions (discussed in this blog post from December 26, 2014) can claiming the exclusion in one of three ways. Depending on the type of exclusion, it can be claimed either solely through the Marketplace exchange, solely through filing tax form 8965, or some exclusions allow either method. Households who claim their deductions through the Marketplace will receive and exemption certificate number (ECN) from the Marketplace, which is reported on section I of the new IRS from 8965. Households who claim the exemptions through their tax return must also attach form 8965 to their form 1040 and complete part III.
Households that are eligible for the premium tax credit claim the credit by attaching form 8962 to their annual form 1040. Calculating the credit considers comparing family size, household modified adjusted gross income and the federal poverty level for their location compared to the total cost of insurance per household. The calculation becomes more calculated when households health insurance situation changes midyear. Households that receive the premium tax credit in the form of the Marketplace health insurance subsidy can expect to repay any advanced subsidy received in excess of the allowed premium tax credit.
Households that do not maintain minimum coverage and are not exempt from doing so, must calculate the household shared responsibility payment using the worksheet included in the instructions of form 8965 and report this on line 61 for form 1040.
Health insurance tax reporting under the Affordable Care Act can be complicated. For further information on how your tax return is impacted, please schedule an appointment without income tax experts.