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Are You Ready for Obamacare?
November 18, 2014 by
Karen Reed, EA
We first heard about it all the way back in 2010, but the Individual Mandate − or Minimum Essential Coverage − did not go into effect until this year. Along with this controversial new health care stipulation comes the penalty for those who do not comply and the tax credit for those who qualify for it. For many taxpayers, Obamacare will not become a reality until they file their 2014 tax returns. Here are a few things you should know to avoid surprises at tax time:
The Minimum Essential Coverage Requirement
Since January of this year, you have been required to carry
Minimum Essential Coverage
or be subject to a penalty, unless you qualify for an exemption. Minimum Essential Coverage generally means self-purchased coverage, government-sponsored coverage, or coverage under an employer plan.
The Shared Responsibility Payment
for not carrying Minimum Essential Coverage may be higher than you think. For 2014, it’s the lesser of a flat dollar amount (which is the greater of a monthly flat rate penalty amount, or 1% of income above a threshold amount) or the average annual premium amount for a bronze level plan. I went to
and calculated the penalty for a single taxpayer with an adjusted gross income of $75,000, just to give you an idea. The penalty amounts calculated are $649 for 2014, $1,339 for 2015, and $1,725 for 2016.
The Premium Tax Credit
In order to qualify for the
Premium Tax Credit
, you must purchase your insurance through the
Health Insurance Marketplace
(also called the state and federal health exchanges) and meet certain other requirements. If you are having your credit paid directly to the insurance company through the
Get it Now
option, a change in your circumstances could result in a greater or lesser credit being calculated on your tax return. Married taxpayers who file using the Married Filing Separately status will not qualify for the credit unless they are a victim of domestic abuse or spousal abandonment and meet the criteria outlined in section
1.36B-sT(b)(2) of the Temporary Income Tax Regulations
Exemptions from the Shared Responsibility Payment
There are a number of situations that can qualify you for an
from the penalty. A few of the exemptions are lack of affordability of coverage, low household income, hardship, and belonging to specific groups, such as Federally-Recognized Indian Tribes and certain religious sects. Some exemptions require a certificate from the Marketplace, while others may be claimed on the tax return.
has new lines on it, and there are new forms for claiming the Premium Tax Credit and Health Coverage Exemptions that you will need to send in with your 1040. In addition, you may receive a statement from your employer or the marketplace reporting information about your health coverage, though employers are not required to issue the
We do not believe you will be subject to penalty, fine, or loss of coverage because your income was incorrectly projected. If you received subsidies it is required of you to file a tax return. If you do so through TurboTax, TurboTax will create a Form 8962. On this Form, the Advanced Premium Tax Credit you actually received will be compared against the Premium Tax Credit that you are actually entitled to. If you are due more of a credit, it will be applied as a payment, and may result in a refund. If you should have received less in subsidies, then it will be applied to your return as an amount due, and you will either owe the IRS, or your refund will be reduced by the amount of credit you would have to repay.
Most folks who end up owing the IRS on their taxes may be subject to two different penalties. If they owe too much they may be subject to a failure-to-pay estimated taxes penalty, and if they cannot pay the additional tax on time, they may owe a failure-to-pay penalty. The IRS has recently announced that it will not assess these penalties this year (2014) for taxes owed due to a miscalculation of the Advanced Premium Tax Credit. If you are assessed a failure-to-pay penalty the IRS will send you a notice advising you of that. You can receive penalty relief by responding to the notice with a letter containing the statement “I am eligible for the relief granted under Notice 2015-09 because I received excess advance payment of the premium tax credit.” The relief from the penalty will not relieve you of the responsibility of paying interest on the amount due, however. Relief from the failure-to-pay estimated tax is done through checking a box on the Form 2210, which should be done through TurboTax.
In the future we suggest you attempt to keep up with fluctuations in your income (or family size) by contacting the Marketplace and informing them of your change in circumstance, if you want to avoid these penalties. The penalty relief is, at the current time, granted for 2014 only.
Also note that this relief does not grant you relief of failure-to-file penalties. So you should make sure you file your return by April 15th, or file for an extension of time to file.
2/9/2015 9:51:55 AM
Thank you for your years of service to our country. Generally health care provided under most types of government programs meets the requirements for “minimum essential coverage,” so Obamacare should not have much impact on you. You will find a list of qualifying programs <strong><a href="http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Minimum-Essential-Coverage" title="Link" rel="nofollow">here</a></strong>. As most retired military personnel are covered by TRICARE or the Veteran’s Administration, you would be considered to have minimum essential coverage. If you are covered under some other plan, please check the list to see if it qualifies.
1/11/2015 2:49:30 PM
I am retired military and have access to free medical at military bases. "Free health care for life" was part of my re-enlistment package. How does Obamacare affect me?
1/9/2015 4:22:03 PM
Although technically it is not an exemption, the good news is you very likely will not have to do anything to meet the requirements of Obamacare. This is because for every month that you qualify for the foreign earned income exclusion you will be deemed to have “minimal essential coverage.”
1/7/2015 8:11:42 AM
I am a US citizen but I have lived in Ireland for many years. I am assuming that I am completely exempt from Obamacare requirements.
1/7/2015 2:34:57 AM
You are correct. Dental coverage is not considered to be part of the minimum essential coverage, so as long as you qualified for actual health care coverage through your employer prior to the three months, you are likely OK.
1/5/2015 9:11:36 AM
You need to have coverage for all months. It doesn’t matter whether the insurance is through your employer, or through government mandated marketplaces, as long as it meets the requirements. Therefore if you, your spouse, and your dependents, if any, had coverage for all months, just indicate that on your tax return. However, it would also be prudent to retain the paperwork showing that you had coverage for all months in the event someone at the IRS questions it at some future time. It is unknown at this time exactly what conditions on a taxpayer’s return are likely going to generate IRS notices and further scrutiny.
1/5/2015 9:07:56 AM
While we cannot comment on what the various forms of Medicare covers or does not cover, Medicare Part A does meet the requirements of “minimum essential coverage” in regard to the penalty (“shared responsibility payment”), as do a number of other government programs that provide medical coverage. A complete list of insurance, including Medicare Part A, that meets the requirement is found <strong><a href="http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Minimum-Essential-Coverage" title="Link" rel="nofollow">here</a></strong>.
1/5/2015 9:06:32 AM
What happens if a person was under obamacare part of the year and switched to employee covered insurance through either covering under husband insurance through marriage or finding a job? Is there a way to indicate that on tax forms since you mentioned on 1040 there is a box to just check which sounded like indicates you had insurance whole year either on obamacare or employee based but not mix?
1/3/2015 9:10:41 AM
My new employer imposes a three-month waiting period for dental coverage and makes you wait until the 1st day of the month following your date of hire. I'm assuming dental coverage is of no concern here. Is that correct?
1/3/2015 8:41:58 AM
How can a person who just has Medicare Part A meet the minimum essential coverage requirements when Medicare Part A only covers facility charges in a hospital or skilled nursing facility and does not cover any physician services, outpatient care or testing and supplies?
1/3/2015 5:52:31 AM
You are correct that you are responsible to maintain health insurance for you, your spouse, and your dependent children. The children’s health coverage through Tennessee’s CoverKids program should suffice. Assuming that you or your wife have no other dependents, the maximum penalty (“shared responsibility payment”) for 2014 will be $190 ($95 x 2). The maximum penalty is capped at 300% of the flat dollar amount, so the maximum penalty is capped at $285 for 2014 ($95 x 3). The flat dollar amount is set to increase from $95 in 2014 to $325 in 2015, and $695 in 2016, and then increase with inflation adjustments. So the maximum penalty is due to rise quite rapidly in the next few years (from $285 in 2014 to $2,085 in 2016).
Note that this is the maximum penalty. The actual penalty calculation is quite complicated. First you have to take the greater of the monthly flat rate penalty ($95 ÷ 12 for 2014) or 1% (also due to increase over the years) of your household income over the filing threshold figured monthly. Then the actual penalty is the lesser of that amount versus what you would have paid for minimum coverage through the government mandated marketplaces (the “bronze” plan), again calculated monthly.
You may want to investigate whether you are eligible for an exemption. One exemption is the affordability exemption. Basically that is if the monthly premiums for the insurance (again figured monthly) exceed 8% of your monthly income, then you can obtain an exemption. There is also a hardship exemption if your household income is below the minimum threshold for filing a tax return. More information on exemptions is available <strong><a href="http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Exemptions" title="Link Exemptions" rel="nofollow">here</a></strong>.
We hope your wife’s treatments go well and that she goes into complete remission.
12/31/2014 9:06:33 AM
My wife and I have no insurance but my kids do through TN cover Kids.
How do penalties work on that situation?
My employer offers ins. But its a high deductible. My wife having cancer we find it that we can afford it and are getting help through a institution.
What kind of penalties are we looking for here?
12/30/2014 9:36:57 AM
Now I see what Pelosi meant when she said, "lets pass the bill so we can see what's in it."
This is so anti-liberty it even feels alien.
12/29/2014 6:29:14 PM
Thank you for your kind and gracious remarks. We are glad you are finding the information helpful.
12/29/2014 6:14:21 PM
Very insightful and Helpful information..
12/29/2014 4:27:02 PM
Our answer is only in regard to your wife, since you did not mention yourself, or any dependents. But please remember that the mandate includes all members of your household. If your wife had coverage for any day in October, she would be considered to be covered for the whole month. In addition, there is an exemption from the penalty called the “short-term” exemption, and she is exempt from the penalty for not having coverage once per calendar year if the lapse in coverage is less than three months. Therefore she should not be subject to penalty in 2014 based on the information you have provided in your question and assuming she had coverage for part of October. If she did not have coverage for any day in October, then she will have to obtain coverage that is effective sometime in December in order to qualify for the short term exemption.
For 2015 the three month period will be influenced by November and December of 2014, as these months will be included in calculating her short term exemption in 2015. Therefore, unless she obtains coverage effective by the end of January (again assuming she had coverage for at least one day in October), the lapse in coverage will be for 3 months (November, December, January), and a penalty may be assessed, that is there will be an additional tax owed on her return, also known as the “shared responsibility payment.” Coverage purchased in January, but not effective until February will not exempt her from the penalty, coverage has to be effective in January. Note that you may still be able to obtain coverage through the government mandated “marketplaces,” you will have to contact them for more information on this coverage.
There may be other exemptions for which you are eligible, further information on exemptions is available <strong><a href="http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Exemptions" title="Link" rel="nofollow">here</a></strong>. But, sorry to say, if your wife has a month without insurance for which she does not qualify for an exemption, it is likely she will be subject to an additional tax.
12/29/2014 12:14:59 PM
My wife changed employers in October. She had employer coverage until then. She just got laid off from her new employer Dec 23 and never qualified for employer coverage. What can we expect since it is highly unlikely she will have coverage before tax time.
12/27/2014 7:55:20 AM
As long as the employer plan is an “eligible employer sponsored plan” (and most, if not all, are), then you are considered to have “minimal essential coverage” for every month your partner and you have coverage. If you have coverage for all twelve months, and if you have a filing requirement, you just need to check a box on your tax return indicating that.
12/24/2014 10:34:47 AM
What if you are covered under your partner employer coverage can you still as you Have always done?
12/20/2014 12:21:34 PM
This is a good question. There seems to be much uncertainty about the new health insurance mandates and the implementation. Also we are sorry to hear of your husband’s lay off, and hope that he finds work soon.
First we would like to mention that the government’s wide ranging mandate that you must have health insurance or face a penalty applies against all members of your household. Thus the concern is not only your husband’s coverage, but also yours and anyone that you claim as a dependent, or in some cases someone you could have claimed as a dependent but did not. The maximum penalty is multiplied for each member of your household who does not have coverage, up to three. Thus this year the maximum penalty widely mentioned is $95, but if both you and your husband are affected, the maximum penalty based on both of you being without coverage is $190, and $285 if you have one or more dependents (this increases to $975 in 2015). You are correct that you may be liable for a penalty for any month in which you do not have coverage that meets the government stamp of approval (meets their definition of “minimal essential coverage”). However, this penalty will not be assessed if you qualify for an exemption. Some exemptions are granted by the “Marketplace,” some are claimed on your tax return, and some are either.
The good news is that since you lost your insurance in the middle of December, you are considered covered for that month and the months prior to your husband’s layoff, therefore it appears unlikely that you will be charged a penalty for 2014. For purposes of the penalty, you are considered to have minimum essential coverage for the entire month as long as you have coverage for at least one day that month. For the start of 2015, there is a “short lapse” exemption. That is if you lack coverage for a period of 3 months or less, and you have coverage for the balance of the year, you will be exempt from any penalty. This exemption may only be used once per year, and it is claimed on your tax return.
There is also an affordability exemption. If the cost of the coverage exceeds 8% (for 2014) of your household income (calculated monthly), then you are exempt. This exemption is also claimed on your tax return. There are a number of other exemptions, such as non-resident, religious grounds, not in the US lawfully, i.e., nonresident and undocumented aliens, prisoners, or certain native Americans. There are also a number of hardship exemptions.
More information on the “Affordable Care Act” tax provisions is available <strong><a href="http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Affordable-Care-Act-Tax-Provisions-for-Individuals-and-Families" title="Link" rel="nofollow">here</a></strong>. More specific information on the exemptions can also be found on this page by following the link “exemption” located in the second bullet point under “Coverage.”
12/18/2014 9:45:25 AM
My husband was laid off on Nov 30,2014 and the last day for are insurance was Dec 15,2014.will we be charged a penalty when we file are Taxes
12/17/2014 4:06:58 PM
If you are not eligible for Medicaid, then you must purchase insurance. Many folks who must purchase insurance through one of the marketplace exchanges may be eligible for a Premium Tax Credit, as long as their income is no more than 400% of the federal poverty level. Poverty levels are based on where you live, and can be found <strong><a href="http://familiesusa.org/product/federal-poverty-guidelines" title="Link" rel="nofollow">here</a></strong>. If you are currently receiving Medicaid but think you will no longer qualify for 2015, you should take advantage of the current open enrollment period for purchasing health insurance through the Marketplace. You can find your local marketplace by visiting the Healthcare.gov website.
If there is a period of time where you have neither coverage through a government program such as Medicaid, nor have insurance, then you will be charged a penalty (the “Shared Responsibility Payment”) unless you are exempt. There is an exemption for up to 3 months (one time per year), meaning you won’t be charged the penalty if you obtain insurance by the end of the third calendar month after you lost coverage. This is known as the “short lapse” exemption. There is also an “affordability” exemption if the average premiums for coverage exceed approximately 8% of your household income. There are also religious exemptions and native American exemptions, amongst others.
12/5/2014 4:30:55 PM
Same question you answered for Sara, however, I qualified for Medicaid based on 2013 income and what I projected my 2014 income would be.
Subsequently, in preparing for year end adjustments, I believe that my income will prove out to exceed the max. allowed for Medicaid eligibility.
I am self employeed and never know what contracts I will receive, when the projects will be completed/when payment will issue to me. So it's a rollercoaster in terms of income. Predictions are extremely difficult.
12/5/2014 9:31:33 AM
Medicare Part A qualifies as “Minimum Essential Coverage” so you will not be required to purchase Part B or an Advantage Plan. You will not, however, be eligible to receive a Premium Tax Credit.
12/5/2014 9:22:41 AM
Great question. And the answer is, perhaps neither or perhaps your Adjusted Gross Income (AGI). The starting point in calculating your credit, if any, is your household modified adjusted gross income. To calculate this you do start with the AGI on your 1040 (or 1040A as the case may be), and add to it any tax exempt interest you claimed, any income you excluded if you claimed the foreign earned income exclusion, and any social security benefits that were not added to your taxable income on your return. Then if you have any dependents for whom you claimed an exemption, and who had income of their own, and who were required to file a return, you have to make the same adjustments to their income and add their modified adjusted gross income to your modified adjusted gross income to determine the household modified adjusted gross income. So if you have no dependents, and have no income from the items for which you have to make adjustments, the starting point in calculating the credit is your AGI.
12/5/2014 9:18:25 AM
How are folks on Medicare Part A only going to be treated?
12/5/2014 7:08:18 AM
Is the premium tax credit based upon your total gross income or total Adjusted Gross Income ???
12/4/2014 1:43:25 PM
You won’t have to do too much. Basically you just have to check a box on the Form 1040 that indicates you, your spouse (if filing married filing joint), and any dependents had what the government deemed minimum essential coverage for all of 2014 (that is each month). Employer plans meet the requirements for minimum essential coverage.
12/3/2014 9:19:32 AM
As with seemingly all things in regard to Obamacare, these are not necessarily easy questions. First, just carrying insurance does not qualify you for a credit. The qualifications are, 1) You must have purchased your insurance through the “marketplace” (either the state marketplace if your state is among the 14 who chose to participate or the federal marketplace), 2) Your household income cannot exceed certain limits (usually 400% of the poverty line), 3) You must be ineligible for other coverage, either through a private employer or other governmental plans, 4) You cannot be claimed as a dependent, and 5) Your filing status cannot be Married Filing Separately. Assuming you meet all of these guidelines, you may be eligible for a credit. You can take this credit through a reduction in your healthcare premium costs (later adjusted on your tax return to the correct amount, either more or less), or wait and get the credit on your tax return. Also note that there are court cases pending that would allow this credit only in the 14 states who chose to set-up the state run “marketplaces.” While it is not believed that these cases will have an impact this year, they remain unresolved.
To some extent the credit is based on your income (the credit is a percentage [based on a sliding scale] of your income as a percentage of the Federal Poverty Level). However, there are also adjustments based on what you actually paid and the cost of healthcare coverage in your local area.
Note that even if you are not eligible for a credit, by carrying insurance that meets the government’s “minimum essential coverage” guidelines you have avoided the tax penalty that may be imposed on you for not doing so.
12/3/2014 9:17:09 AM
Since I have insurance through my employer is there anything that I will need to do when filing my taxes for 2014?
12/2/2014 8:24:49 AM
What amount of credit will we be receiving for following the guidelines and carrying insurance in 2014? Is it based on income or is it a flat rate?
12/2/2014 6:52:33 AM
12/1/2014 7:27:20 PM
Generally, amounts received from your health care marketplace in the form of subsidies or advanced premium tax credits are not considered to be taxable income. However, because the amount of the subsidy depends on an estimate of your income at the time you started receiving it, the amount you actually qualify for when you file your tax return may be different, and this may result in the amount of actual tax credit to be reduced. If you were receiving an advanced tax credit via a subsidy, you may be required to refund the difference between what you actually received and what you qualify for when you file your tax return.
The computation of any pay-back of the subsidy is contained in the form instructions for Form 8965, Health Coverage Exemptions. You may need to have Form 1095-A to compute if you are required to pay back any credit, and you should receive this form from your local marketplace in January. TurboTax will be able to do this computation for you if you answer the questions regarding your health insurance coverage, subsidy, and the months you are covered.
12/1/2014 9:25:19 AM
Do we pay tax on the subsidy goiven for Obamacare?
11/28/2014 2:51:44 PM
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