How Will the Affordable Care Act Affect Your Taxes?
The new requirement is tied to tax credits and penalties, and navigating it could be a
challenge for many.
Every year, the ides of April loom large for many Americans, who eye the annual deadline for filing their taxes with dread. This year, in addition to declaring income, deductions, charitable donations and the like, the implementation of the Affordable Care Act requires taxpayers to report their health insurance coverage.
The new requirement is tied to both premiums and penalties, and it affects all federal individual income tax returns filed in 2015 for the 2014 calendar year.
The ACA, also known as Obamacare, states that individuals must maintain insurance coverage year-round. Those who don't must have an exemption or make what the government calls an "individual shared responsibility payment," which is basically a fine. Penalties for not having qualifying health insurance in 2014 are relatively low, but they will steadily increase in 2015 and 2016.
When people buy insurance for themselves and/or their families through the government's health insurance marketplace, they may be eligible for a tax credit. That credit can be applied directly to their insurance provider to offset their monthly premiums.
Although the ACA was passed in March 2010, this is first time many people will see it directly impact their taxes.
"The Affordable Care Act is a big deal this year," says Kristin Esposito, senior technical manager of the tax division at the American Institute of Certified Public Accountants. "In the past, there were one or two provisions of the Affordable Care Act implemented each year, but they were stand-alones. In 2015, everything comes together."
Will You Be Affected?
Despite all the hype, many Americans won't be affected by the new filing requirement.
"The truth is, if you're in a traditional job with employer-paid benefits, this isn't likely to affect you," says Stephen Kahn, a CPA in private practice in the Washington, D.C., area. "If you're single or married, and your spouse and kids are all on the same employer-sponsored plan, it's really not going to make a big difference to you." In such cases, Kahn says, taxpayers will simply be able to check a box on the newly retooled 1040 tax form, claiming they have what the government calls "minimal essential coverage."
But Stefanie Krutilek, a tax preparer and principal of The Krutilek Group in Southern California, says that while a "traditional" workforce might not see many changes in this year's filing, America's workforce is increasingly nontraditional. People not on an employer-paid health care plan, or on one that doesn't cover all members of their family, are going to have a more difficult time with this year's return.
"You could have members of the same family on different insurance policies, or some not on insurance at all. Maybe they don't have a filing requirement, or maybe they live with a set of grandparents," Krutilek says. "There are so many possible variations to consider."
Where to Find Help:
The IRS and the Department of Health and Human Services have created several online resources toprepare your taxes, and both will be adding more over the next few months. Due to budget cuts at the IRS, it may be difficult to get help from someone at the office, and Kahn recommends those with questions should exhaust all other resources before attempting to contact the IRS directly.
For individuals preparing their own taxes via an online tax preparer, H&R Block and TurboTax both offer calculators to help determine whether the Affordable Care Act will affect their customers.
"If you're going to work with a CPA or other tax professional, you should allow a little more time than usual to prepare," Esposito says. "Tax practitioners have been learning about this along the way, and taxpayers are going to need to know something about it, because they're going to have to answer questions about their own situation."
Krutilek warns that no matter how people file, they should be prepared for some uncomfortable questions. "Taxes have always involved that personal element, but it feels a little more intrusive this year, because now we're asking very personal questions about a person's history of health insurance, whether there were gaps in coverage, if they qualified for a low-income tax credit … that sort of thing," Krutilek says.
Keep Calm … and Pay Your Taxes
But even if the Affordable Care Act does change your filing, there's no reason to worry just yet.
"I really think the process is just going to confuse everyone," Krutilek says. "There are just so many situations where a fine is probably necessary, but there may be an exemption. Taxpayers and tax preparers alike will all be learning this year."
During the learning process, most taxpayers will be hoping for a tax credit or a refund as a result of the Affordable Care Act. But those hit with a penalty shouldn't panic.
"If you're hit with a tax bill, immediately set up a repayment plan," Esposito says. "If you make payments on a regular basis, you'll remain compliant, and that will be much better in the long run than if you fall behind."
Source: US Money & World Report- Money: How Will the Affordable Care Act Affect Your Taxes?