What is the Affordable Care Act? Under the Affordable Care Act (ACA), the federal government, state governments, insurers, employers, and individuals share responsibility for improving the quality and availability of health insurance coverage in the United States. The ACA reforms the existing health insurance market by prohibiting insurers from deny¬ing coverage or charging higher premiums because of an individual’s preexisting conditions. The ACA also creates the Health Insurance Marketplace (Marketplace, also known as the Exchange). The Marketplace is where taxpayers find information about health insurance options, purchase health insur¬ance, and, if eligible, obtain help paying premiums and out-of-pocket costs. A new tax credit, the premium tax credit, is available through the Marketplace and helps eligible taxpayers pay for coverage. The ACA also includes the individual shared responsibility provision, which requires individuals to have qualifying health care coverage (called minimum essential coverage) for each month of the year, qualify for a coverage exemption, or make a shared responsibility payment (SRP) when filing their federal income tax returns. Many taxpayers were enrolled in minimum essential coverage prior to 2014 and will need only to maintain that coverage in 2014 and report their enrollment on their 2014 tax return. Some taxpayers are exempt from individual shared responsibility provision and do not have to make an SRP when filing a federal income tax return. Coverage exemptions are available for individuals specifically described as having a religious, economic, or other justification for not having minimum essential coverage. Taxpayers who do not have minimum essential coverage and do not qualify for a coverage exemption must make an SRP with their 2014 tax return. What documentation will taxpayers receive? By January 31 of the year following the year of coverage, the Marketplace will send taxpayers who purchased insurance through the Marketplace Form 1095-A. The information statement includes the monthly premium for the applicable SLCSP used to compute the credit, the total monthly premium for the coverage of the taxpayer or family member, the amount of the advance credit payments, the SSN and names for all covered individuals, and all other required information. The Marketplace also reports this infor¬mation to the IRS. Use the information on Form 1095-A to compute taxpayers’ premium tax credit on their 2014 tax return and to reconcile the advance credit payments made on their behalf with the amount of the actual premium tax credit on Form 8962. If Form 1095-A was lost or never received, advise the taxpayer to contact the Marketplace for a copy. How is the premium tax credit claimed on the tax return? Taxpayers claim the premium tax credit on the tax return. Taxpayers who received the benefit of advance credit payments must file a tax return even if they otherwise are not required to file. Remember, the premium tax credit is only available to taxpayers who purchased health coverage through the Marketplace. On Form 8962, a taxpayer must subtract the advance credit payments for the year from the amount of the taxpayer’s premium tax credit calculated on the tax return. If the premium tax credit computed on the return is more than the advance credit payments made on the taxpayer’s behalf during the year, the difference will increase the refund or lower the amount of tax owed. This will be reported in the Payments section of Form 1040. If the advance credit payments are more than the premium tax credit (an excess advance credit payment), the difference will increase the amount owed and result in either a smaller refund or a balance due. This will be entered in the Tax and Credits section of the return. There may be a limitation on the amount of tax liability a taxpayer owes as a result of an excess advance credit payment. The limitation is based on the taxpayer’s household income. Who must have health care coverage? In general, all U.S. taxpayers are subject to the individual shared responsibility provision. Under the provi¬sion, a taxpayer is potentially liable for him or herself, and for any individual the taxpayer could claim as a dependent for federal income tax purposes. Thus, all children generally must have MEC or qualify for a coverage exemption for each month in the year. Otherwise, the primary taxpayer(s) (e.g., parents) who can claim the child as a dependent for federal income tax purposes will generally owe an SRP for the child. Senior citizens must also have MEC or qualify for a coverage exemption for each month in the year. Both Medicare Part A and Medicare Part C (also known as Medicare Advantage) are minimum essential coverage. All U.S. citizens are subject to the individual shared responsibility provision, as are all non-U.S. citizens who are in the U.S. long enough during a calendar year to qualify as resident aliens for federal income tax purposes. Foreign nationals who live in the U.S. for a short enough period that they do not become resident aliens for tax purposes are exempt from the individual shared responsibility provision even though they may have to file a U.S. income tax return. All bona fide residents of U.S. territories are treated as having MEC and are not required to take any action to comply with the individual shared responsibility provision other than to indicate their status on their federal income tax returns. Note that MEC includes a group health plan provided by an overseas employer. Summary The Affordable Care Act addresses health insurance coverage and financial assistance options for individu¬als and families, including the premium tax credit. It also includes the individual shared responsibility provi¬sion and coverage exemptions from that provision. In general, all U.S. taxpayers must have MEC for each month, qualify for a coverage exemption, or make a payment when filing his or her federal income tax return. Some coverage exemptions are granted only by the Marketplace, some exemptions can be claimed only on a tax return, and some exemptions may be granted by the Marketplace or claimed on a return.
Posted on: Thu, 20 Nov 2014 02:08:22 +0000
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