Taxes and the ACA: What You Need to Know

The Affordable Care Act (ACA) makes health insurance coverage more affordable for many Americans by providing federal premium tax credits (PTC) to eligible individuals purchasing a qualified health plan (QHP) through a health insurance marketplace with individual income below $46,680 in 2014 (or households earning under 400% of the federal poverty line). To help make coverage more affordable for everyone purchasing coverage through marketplaces, the ACArequires that all Americans purchase health insurance coverage or pay a penalty (also known as a “shared responsibility payment”) unless it’s unaffordable or they are exempt. The 2014 tax season will be the first year these new requirements apply and need to be considered in the tax filing process. What this means practically speaking is new terminology, new forms, new requirements, and new questions from tax filers before April 15, 2015. State officials, legislators and consumer assisters will need to understand what these new requirements and forms mean and how to use them. State Refor(u)m is here to help. We put together this blog and our newTax Reconciliation Cheat Sheet to answer all your questions.
What are the new tax forms?  There are three new IRS forms for ACA-related tax filing:

• IRS Form 1095-A: Health Insurance Marketplace Statement
• IRS Form 8962: Premium Tax Credit
• IRS Form 8965: Health Coverage Exemptions

All of these forms are new this tax season and correlate to what type of financial assistance and health insurance, if any, the tax filer had in 2014.  Our new Tax Reconciliation Cheat Sheet provides more detailed information about the forms’ purposes, who uses them, and what you need to know about each of them.
Who needs to file these forms?  Whether a tax filer needs to file these forms depends on the individual’s coverage status:

• Tax filers who purchased a QHP through a marketplace and received financial assistance: Tax filers who purchased a QHP from a state or federal marketplace and received financial assistance through an advanced premium tax credit (APTC) will use two forms: 1095-A and 8962.  The marketplace will send Form 1095-A to the tax filer. Form 1095-A includes important information needed for determining the appropriate PTC for the tax year, including the monthly APTC amount received, the months for which each individual had coverage, and the cost of the applicable Second Lowest Cost Silver Plan. The tax filer will then use the detailed information from Form 1095-A to fill out Form 8962, which will help them determine the amount of Premium Tax Credit (PTC) that was payable for the tax year, and determine whether any APTC funds advanced need to be repaid in taxes or whether additional PTC funds are owed and refundable through tax filing. A tax filer needs Form 1095-A to fill out Form 8962, just like a W-2 Statement is used to complete and file a Form 1040EZ.

• Tax filers who purchased a QHP through a marketplace and did not receive financial assistance: Tax filers who purchased a QHP through a marketplace and did notreceive financial assistance through an APTC will use Form 1095-A and may use Form 8962. Like the first group, these filers will receive Form 1095-A from their marketplace. Although they are not required to complete Form 8962, these tax filers may want to fill it out anyway to determine whether their final taxable income for 2014 made them eligible to receive a PTC. In other words, filing Form 8962 could help consumers get more money back.

• Tax filers who are uninsured: Tax filers who were uninsured in 2014 will need to useForm 8965 (and related worksheets) to either claim an exemption or determine the amount of each individual’s shared responsibility payment. There are many situations that may qualify a tax filer for an exemption (for a full list of exemptions, see page 2 here). Individuals who were granted an exemption from the marketplace will also need to use a form they received from the marketplace to identify their exemption certificate number (ECN). Tax filers who do not qualify for an exemption and who did not have minimum essential coverage (MEC) will use the worksheets for Form 8965 to calculate the tax penalty amount. That amount is then reported on the tax filer’s return and taken into account in determining taxes owed. Individuals who are not required to pay taxes because their income is too low are exempt from the penalty.

• Medicaid and Insured Individuals: For the purposes of tax reconciliation, people with Medicaid that meets the MEC requirements are considered insured. These Medicaid recipients and other insured individuals will mark a box on their tax return stating that they have health coverage. If the Medicaid programs provided do not meet MEC requirements, recipients should qualify for an exemption.

What happens if tax filers don’t file the required forms?  Individuals who don’t file the required forms and either repay PTC that is owed or the penalty will be liable to the IRS for the outstanding amounts. The Centers for Medicare and Medicaid Services (CMS) just announced that some individuals may have received erroneous calculations of their PTC and that they are waiving the owed PTC for those who already filed their taxes.
What about uninsured individuals who missed open enrollment this year? A special enrollment period (SEP) is coming in the federal and many state-based marketplaces. CMSrecently announced a six-week SEP, from March 15 to April 30, 2015, for people who enroll using the Federally-facilitated Marketplace (healthcare.gov). This SEP provides a unique opportunity for those facing a penalty to enroll in health coverage and avoid another fine this year. Multiple states with state-based marketplaces are have established or are considering similar SEPs around tax filing time.
Where can you get more information?  In addition to this summary and information from the Internal Revenue Service, State Refor(u)m has a number of resources posted here displaying the core concepts summarized in this blog. Do you understand the tax reconciliation process?  Has your state prepared any resources to make the process easier to understand? Post your questions and resources on State Refor(u)m.  Share your questions in a comment below or on ourInsurance Exchanges discussion page.