What Every Tax Practitioner Must Know About the Affordable Care Act
2014 was the first year that it was required for all taxpayers to report their healthcare coverage on their personal tax return. This is due to The Affordable Care Act which is bringing up challenges, particularly for tax practitioners. Tax practitioners are people who give advice or complete a tax return on behalf of someone who will pay the practitioner in return. Tax practitioners now have to determine whether their clients actually have health insurance that qualifies or if an exemption from the mandate is permitted. They also must calculate any penalties and determine if the coverage is eligible for premium tax credit.
The Affordable Care Act requires all taxpayers to do at least one of the following three things.
– The taxpayer must have healthcare coverage that qualifies for each month of the year.
– The taxpayer must have an exemption from said requirement to have healthcare coverage.
– The taxpayer must make an individual share the responsibility payment upon filing for a federal income tax return.
In most cases, this new requirement is very simple. A taxpayer just has to check the box on the Form 1040 that states that everyone that is marked on the front of the tax return had healthcare coverage that qualified for the whole year. If a taxpayer has more than one of the above instances, their tax practitioner has to carefully pay attention to make sure that taxpayer’s situation is being handled in the proper manner.
How to Determine Qualifying Healthcare Coverage
The first thing that a tax practitioner should do in terms of The Affordable Care Act is figure out whether the taxpayer had the minimum qualifications for healthcare coverage every month of the year. This will usually include healthcare coverage that is from one’s employer health plan, Medicaid, Medicare, TRICARE, CHIP, or any other qualifying individual coverage plan. All of these healthcare insurance policies must more than the minimum benefits like vision and dental.
If a taxpayer has qualifying healthcare coverage under an individual insurance policy that was purchased through a state insurance marketplace, they may be eligible for a premium tax credit. They must receive a Form 1095-A which is a Health Insurance Marketplace Statement to report their healthcare coverage. It is very important for a tax practitioner to keep a copy of this form for a taxpayer who is in this type of situation. If the taxpayer has healthcare coverage through a different source, the tax practitioner should again keep all of the documentation that shows that everyone that is listed on the tax return had qualifying healthcare coverage for the entire year. For 2014, the IRS allowed that the taxpayer can simply state that they had healthcare coverage but even so, tax practitioners should be completely thorough.
Individual Shared Responsibility Penalty
Even for one month out of the 12 months in a year, if a taxpayer did not have qualifying healthcare coverage or if they were not eligible for an exemption, it is required of them to make individual shared responsibility payments along with their tax return. It is considered having qualifying healthcare coverage for the whole month as long as the taxpayer is enrolled and able to receive benefits under a qualifying insurance plan for one day out of said month.
A taxpayer may be eligible for an exemption from having qualifying health insurance for one of the following reasons.
– The taxpayer must pay a minimum amount for their annual premium which is over 8% of their household income.
– The gap in their healthcare coverage is less than three months in a row.
– Other personal reasons including a hard situation that prevented them from enrolling in healthcare coverage all together or if the taxpayer is part of a group that exempts them completely from the requirement.
Tax practitioners should understand that a taxpayer can only be exempt from the requirement due to hard situations if the state marketplace allows it. These hard situations can include homelessness, domestic violence, eviction, bankruptcy, significant debt from medical expenses, and more factors that can be discussed with the state marketplace. If the taxpayer was qualified for an exemption for any reason that was not granted by the state marketplace, the tax practitioner should be very careful and document all of the information.
If a taxpayer is exempt from the healthcare coverage requirement, they do not have to make a shared responsibility payment with their 2014 federal income tax return. If there was even a single month out of 12 months in a year that the taxpayer did not qualify for health insurance exemption, they will either need to meet all requirements for qualifying healthcare coverage or make the shared responsibility payment along with their 2014 federal income tax return.
The ACA is a complicated topic to cover when it comes to tax prep. Your tax practice’s focus needs to be on serving your clients to the best of your ability, sustained growth and time efficiency. Like most preparers, you probably waste time sending out tax forms. This is the 2nd tax season I’ll be using eFile4Biz.com to file 1099 online for my clients. Two years ago, I just became fed up and decided to efile 1099 forms instead. It was the best decision I ever made in business with these guys. Their video is shown below for your convenience.
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