Health insurance and income taxes, once an unlikely pair, are now close companions as a result of the Affordable Care Act's insurance mandate that took effect Jan. 1, 2014.
If you have health insurance through the federal or a state-sponsored marketplace, it means a couple of important yet simple changes on your next income tax return.
First, you'll receive a new tax form from your marketplace around Jan. 31, 2015. Form 1095-A, Health Insurance Marketplace Statement, will include the information you need to report on your federal tax return in order to prove you have health insurance.
Form 1095-A will also include information you need for the premium tax credit, a tax benefit to help pay for marketplace insurance. The credit amount is based on household size and income. In general, the lower your income, the higher your credit amount.
In order to qualify for the premium credit:
- You must be ineligible for government programs like Medicare, Medicaid and CHIP.
- You cannot have employer-sponsored insurance, or the lowest-priced, self-covered plan meeting minimum essential requirements offered by your employer costs more than 9.5 percent of your annual household income.
- Your annual household income is 100 percent to 400 percent of the federal poverty level. For the 2014 credit, that's $11,490 to $45,960 for an individual. (Hawaii and Alaska residents are subject to different amounts.)
- You cannot be claimed as a dependent on someone else's tax return.
- Your filing status generally cannot be married filing separately.
The credit can be received in advance in order to reduce the cost of your monthly premiums, or you can wait to claim it on your tax return to reduce your amount owed or increase your refund.
If your income or family size is different than what you estimated when you applied for marketplace insurance, your taxes may be impacted. If your actual income was less than estimated, you may qualify for a higher credit amount and therefore receive a larger refund. On the other hand, if your actual income was more than the estimated amount, you may need to pay some of the credit back at tax time.
DIY tax solutions make reporting marketplace insurance and the premium credit a simple matter.
"You can still easily prepare and file your own taxes," says Jessi Dolmage, spokesperson for TaxAct. "Just enter Form 1095-A information when the program asks and answer some simple questions. The program will complete the calculations and tax forms to help you get every dollar you deserve."
If you plan to enroll in marketplace insurance during the next enrollment period, Nov. 15, 2014, through Feb. 15, 2015, Dolmage recommends calculating your taxes beforehand. "You'll need to enter some tax information on your marketplace application. TaxAct makes that easy. Complete the easy interview and the program will generate a HealthWatch report with all the tax information you need to apply for insurance and the premium credit."
Dolmage also reminds uninsured individuals planning to claim an exemption to visit healthcare.gov/exemptions to check if your situation requires an exemption certificate number (ECN). If so, mail the paper application and supporting documentation to your marketplace now because it can take weeks to process. After your application is accepted, you'll receive an ECN to report on your tax return in order to avoid the individual shared responsibility payment.