As of January 1, 2014 under the Affordable Care Act, individuals and their dependents, unless exempt, are required to carry minimum essential health coverage or pay a penalty (tax).
Everyone must address minimum essential coverage on their 2014 return, you must either be covered by your employer, by the government under Medicare or Medicaid, or have individual coverage, a bronze, silver, gold or platinum level individual plan which can be purchased on the government exchange, or other qualifying plan offered by a health insurer.
Individuals with minimum essential coverage for 2014 will check a box on their Form 1040 (Line 61). Individuals without minimum essential coverage and who are not exempt, are liable for a “shared responsibility payment.” These payments are due with their tax return for 2014.
Payment
The amount of the payment due is based on the greater of a flat-dollar amount or a percentage of income. The flat-dollar amount for 2014 is $95.00 but increases to $395 for 2015 and to $695 for 2016. For 2014 the percentage income figure is one (1%) percent of household income. For example if an individual’s household income for 2014 is $25,000 then the Shared Responsibility Payment would be the greater of $95.00 or $250.00.
Note that the IRS has no collection powers with respect to this Shared Responsibility Payment and thus cannot levy bank accounts to collect it or garnish wages, or file liens.
In addition, the amount of the penalty is based upon the number of days a person is covered during the calendar year with minimum essential coverage.
Exemptions
Permitted exemptions from the requirement of maintaining minimum essential coverage for the year are:
- Religious conscience
- Health care ministry
- Members of Federally recognized Native American nations
- Individuals whose income is below the minimum return filing threshold
- Individuals with SHORT coverage gaps.
- Hardship cases
- Affordability cases
- Incarcerated individuals
- Individuals who are not lawfully present in the US.
In order to claim one of these exemptions a taxpayer will be required to file a Form 8965, health coverage exemption with his 2014 return.
Premium Assistance Credit
An individual who has obtained minimum essential coverage through the government’s (possibly limited to a state exchange only) health insurance exchange may qualify for the Section 36B premium assistance tax credit. The Department of Health and Human Services (HHS) is the agency for helping individual enroll in the health care exchanges and obtaining financial assistance. Advance payments of the credit may be made to the insurer. Individuals who receive advance payments of the Section 36B credit must reconcile their payment using Form 8962 which must be filed with the individual’s Individual Income Tax Return, Form 1040 for the relevant year.
The exchanges will provide individuals enrolled in a qualified plan with annual information statements (Form 1095-A, Health Insurance Marketplace Statement.) Taxpayers will use Form 1095-A to complete Form 8962. Forms 1095-A must be provided to enrollees by January 31 for the year following the year of coverage.