Tax Time, the Affordable Care Act, and You
We have compiled answers (directly quoted from IRS.gov) to three of the more commonly asked questions as it pertains to Obamacare (the Affordable Care Act) and tax regulations. These topics include:
- Federal reporting requirements regarding your coverage status
- How to calculate your penalty if you don't meet the requirements
- Information about the Small Business Tax Credit (if you own a small business and apply through the exchange)
Reporting Health Care Coverage, Exemptions and Payments
When you file your federal tax return, you will need to report minimum essential coverage and report or claim a health care coverage exemption for any month without coverage for everyone on your tax return.
When you file your tax return, you are required to make a payment for the months that you and any family members do not have minimum essential coverage or a coverage exemption.
You do not need to file a tax return solely to report your health care coverage or to claim an exemption if you are not otherwise required to file. However, if you are not required to file a tax return but choose to file, you should claim the coverage exemption and file Form 8962, Health Coverage Exemptions, when you file your tax return.
If you and your dependents all had minimum essential coverage for each month of the tax year, you will indicate this on your federal tax return by simply checking a box on Form 1040, 1040A or 1040EZ. No further action is required to report your health care coverage.
If you or anyone on your tax return qualifies for a coverage exemption or the Marketplace granted a coverage exemption, you claim or report it on your return by filing Form 8965, Health Coverage Exemptions, with your tax return.
For any month you or your dependents did not have coverage or a coverage exemption, you will have to make a shared responsibility payment. If you have to make a payment, you can use the worksheets located in the instructions to Form 8965 to figure the shared responsibility payment amount. The payment will be reported on Form 1040, line 61 in the “Other Taxes” section and on the corresponding lines on Form 1040A and 1040EZ.
See the Claiming and Reporting an Exemption and Individual Shared Responsibility Provision – Reporting and Calculating the Payment pages on IRS.gov for more information about figuring and reporting the payment. You can also see our fact sheet, titled Health Coverage Exemptions: What They Are, How to Obtain Them, and How to Claim Them.
Here’s the 4-1-1 on Calculating an Individual Shared Responsibility Payment
The Affordable Care Act requires you and each member of your family to have minimum essential coverage, qualify for an insurance coverage exemption, or make an individual shared responsibility payment for months without coverage or an exemption when you file your federal income tax return.
In general, the annual payment amount is the greater of these two amounts:
A percentage of your household income – 2 percent of income above filing threshold for 2015
A flat dollar amount - $325 per adult and $162.50 per child for a family maximum of $975 for 2015
However, this is capped at the national average premium for a bronze level health plan available through the Marketplace. You will owe 1/12th of the annual payment for each month you or your dependents don’t have either coverage or an exemption.
Your payment amount is capped at the cost of the national average premium for a bronze level health plan available through the Marketplace. For 2015, the annual national average premium for a bronze level health plan available through the Marketplace is $2,484 per year – or $207 per month – for an individual and $12,240 per year – or $1,020 per month – for a family with five or more members.
If you are required to make a payment, you can use the worksheets located in the instructions to Form 8965, Health Coverage Exemptions, to figure the shared responsibility payment amount due.
If you did not have coverage and your income was below the tax filing threshold for your filing status, you qualify for a coverage exemption. You do not have to file a tax return solely to claim this exemption. However, if you do file a return, you should file Form 8965, Health Coverage Exemptions, and you should not make a payment with your return.
For more information about determining the amount and reporting your payment on your tax return, see our Calculating the Payment page.
You can also use the Individual Shared Responsibility Payment Estimator, which can help you estimate the amount you may have to pay if you did not have minimum essential coverage during the year.
The Small Business Health Care Tax Credit: Seven Tax Tips for Employers
Do you own a small business or run a tax-exempt organization with fewer than 25 full-time equivalent employees? If you do, the Small Business Health Care Tax Credit can help you provide insurance to your employees. You may be able to save on your taxes if you paid for at least half of their health insurance premiums. Here are seven tax tips about this credit:
1. Maximum Credit. The maximum credit is 50 percent of premiums paid by small business employers. The maximum credit is 35 percent of premiums paid by small tax-exempt employers, such as charities.
2. Number of Employees. You must have fewer than 25 full-time employees, or a combination of full-time and part-time employees. For example, two half-time employees equal one full-time employee for purposes of the credit.
3. Average Annual Wages. For 2015, the average annual wages of your employees must have been less than $52,000. The IRS will adjust this amount for inflation each year.
4. Half the Premiums. You must have paid a uniform percentage, at least 50%, of the cost of premiums for all enrolled employees.
5. Qualified Health Plan. Generally, you must have purchased a qualified health plan from a Small Business Health Options Program, or SHOP, Marketplace. There are limited exceptions to this requirement.
6. Two Year Limit. As of 2014, an eligible employer may claim the credit only for two consecutive taxable years.
7. Tax Forms to Use. Employers use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. Small businesses employers claim the credit on the annual income tax return. Small tax-exempt employers claim it on Form 990-T, Exempt Organization Business Income Tax Return.
If you are a small business employer and the credit is more than your tax liability for the year, you can carry the unused credit back or forward to other tax years. If you are a small tax-exempt employer, the credit is refundable, so even if you have no taxable income you may receive a refund (so long as it does not exceed your income tax withholding and Medicare tax liability for the year).
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.
Additional IRS Resources: