As a result of the Healthcare Reform Act, filing your 2014 tax return has become a LOT more complex.
First we will start with who gets off easy – anyone who had coverage for themselves and their dependents for the entire year. All they will need to do is check a box on their tax return. This includes medical coverage provided by their employers, insurance obtained through an exchange, Medicare, Medicaid, and Veterans coverage.
For those who did not have coverage, it gets more complex. They will owe a tax unless they have an exemption. Exemptions are generally for people for whom health coverage is too costly. Individuals seeking a hardship exemption must apply through the exchange. If the exchange approves the exemption, the applicant will be given a code number that he or she will enter on Part I of Form 8965 to substantiate the claimed exemption. Form 8965 is very complex and will be confusing to fill out!
The exemptions include the following:
- Employees whose share of premiums exceeds 8% of the household’s AGI won’t be hit.
- People who are not eligible for employer coverage if the cost of a basic bronze-level plan in an exchange, less any tax credit for buying insurance, exceeds 8% of household AGI.
- Filers who are without coverage for periods of less than three months.
- Those with household incomes below the thresholds for filing a return… $10,150 for singles, $13,050 for heads of household and $20,300 for joint filers.
- People who can show that a hardship forced them to go without coverage. The feds have OK’d 14 qualifying circumstances. They include getting a shut-off notice from a utility, major property damage from a natural disaster, filing for bankruptcy, suffering domestic violence, and facing foreclosure or eviction from your residence. Individuals whose insurance was canceled and who can’t buy an affordable policy are also eligible, as are those with large unpaid medical bills within the past two years. And there’s a general catch-all hardship exception if none of the other listed items fit.
Health Premium Tax Credit – taxpayers will need to reconcile subsidies that they received with the actual credit they are entitled to using Form 8962.
The tax for being uninsured is typically the higher of two amounts – the basic penalty or an income-based levy.
- The basic penalty for 2014 is $95 a person ($47.50 for each family member under age 18), with a ceiling of $285.
- The income-based penalty is 1% of the excess of the taxpayer’s household income over the minimum level of income needed to trigger the filing of an income tax return. The tax is lowered proportionally for any months the taxpayer had health insurance.
But in no case can the tax exceed the cost of a bronze-level exchange plan for the taxpayer and family members, also adjusted for months with health coverage. For 2014, that monthly cost is $204 per person and $1,020 for a family of five.
IRS has limited remedies to collect this tax. It cannot use liens and levies, so it can only offset tax refunds. Nor can it charge interest on the unpaid balance.
For 2015, the tax will be significantly higher. The basic penalty will soar to $325 a person ($162.50 for each family member under 18), with a ceiling of $975. The income-based penalty will be 2% of household income over the filing threshold. In 2016, the basic penalty rises to $695, and the income-based levy is a tad higher.
Adopted from The Kiplinger Tax Letter 10/10/14