Answering the Most Common Obamacare Tax Questions

With new forms and subsidies related to the Affordable Care Act (Obamacare), this has been one of the most challenging tax seasons in years.

To help taxpayers, the American Institute of CPAs (AICPA) has provided a list of the most commonly-asked questions about the health insurance information reporting required by the Affordable Care Act on 2014 federal income tax returns.

“Taxpayers will be in one of three situations – they will have had health insurance that met the requirements for minimum essential coverage under the Affordable Care Act, they will have qualified for an exemption, or they will owe the penalty for not having qualified health insurance,” said Edward Karl, CPA, CGMA, AICPA Vice President of Taxation. “In order to meet the information reporting requirements, taxpayers will have to gather new records and become familiar with new forms, instructions and terms.”

Here’s what taxpayers need to know about the ACA as they begin preparing to file their taxes:

Where do I report my health insurance information on my tax return?

Taxpayers will use Line 61 on Form 1040, Line 38 on Form 1040-A and Line 11 on Form 1040EZ to report on their 2014 federal tax return whether they had health care that met minimum essential coverage standards under the ACA for each month of 2014, unless they were exempt. For many taxpayers, that just means checking the full-year coverage box on their tax return.

How do I know if I had minimum essential coverage?

Taxpayers who purchased health insurance from the Marketplace for 2014 received Form 1095-A, Health Insurance Marketplace Statement, from the Marketplace verifying that they had minimum essential coverage. Most Medicare, Medicaid and veterans’ health care programs qualify, as do health insurance policies purchased by taxpayers from an insurance company. Many employer-provided health insurance plans met the standards, but taxpayers will not receive a health insurance information statement from employers or insurance companies for the 2014 tax year. Employers and insurance companies are required to provide the information for 2015 and future years.

What if I didn’t have minimum essential coverage?

Penalties, dubbed individual shared responsibility payments under the ACA, are owed by taxpayers for each month they did not have qualifying coverage. The primary taxpayer filing the tax return is responsible for penalties owed by any dependents claimed on the return who did not have minimum essential coverage.

How do I know what my penalty is?

The instructions for Form 8965 include a worksheet that taxpayers – who did not have minimum essential coverage or who did not quality for an exemption – use to calculate the amount they owe. The amount is reported on their tax return (Line 62 on Form 1040, Line 38 on Form 1040-A and Line 11 on Form 1040EZ) and paid when the taxpayer files the tax return.

Is the penalty the same each year?

No. It goes up in 2015 and future years. The penalty for 2014 is $95 per adult and $47.50 per child (with a family maximum of $285) or one percent of household income that is above the filing status, whichever is greater. In 2015, the penalty is $325 for each adult and $162.50 for each child under 18 (with a family maximum is $975) or two percent of household income, whichever is greater. The overall penalty limit is equal to the national average a family would pay for a Bronze-level insurance plan on the Marketplace.

How do I request an exemption?

Qualifying taxpayers can get an exemption from minimum essential coverage through the Marketplace or by claiming the exemption on their tax return using Form 8965, which is filed with the tax return. Some exemptions are granted through the Marketplace, some are claimed directly on the tax return and some are available using either method. The IRS website has a chart explaining how each exemption can be obtained.

What is an Exemption Certificate Number?

When the Marketplace grants an exemption it sends taxpayers a notice with a unique number, called an Exemption Certificate Number (ECN). The ECN must be entered on the taxpayer’s Form 8965 in Part I of the form under Column C. If the taxpayer’s request for an exemption hasn’t been approved by the time the taxpayer is ready to file his/her return, the taxpayer should enter “pending” in Column C. An ECN is not needed if the exemption is being directly claimed on the tax return.

What is the premium tax credit?

Taxpayers who had health insurance in 2014 through the Health Insurance Marketplace may be eligible for the premium tax credit to help lower the cost of their coverage. Taxpayers who are eligible for the credit must file Form 8962 with their return to claim the credit and also reconcile any advance payments received throughout the year against the actual amount of the credit. Taxpayers may be owed money or may have to pay back part of what they received.

When is the enrollment deadline?

The open enrollment deadline to purchase health insurance for 2015 ended on February 15. However, the Centers for Medicare & Medicaid Services announced on February 20 that a special enrollment period for 2015 is available to taxpayers who did not have minimum essential coverage in 2014 and who owe the shared responsibility payment. The special enrollment period is available to taxpayers who live in states that use the Federally-facilitated Marketplaces and runs from March 15 to April 30. Some states that operate their own marketplace may also offer a special enrollment period.

Do taxpayers have to file a tax return just to report health insurance information?

If taxpayers are not required to file a federal income tax return, they do not have to file a return only to report their health insurance coverage or to claim an exemption from minimum essential coverage.