Obamacare and Your Personal Tax Return: What You Need to Know

For most people, checking a box is all that is required on their tax return for Obamacare. Some people will need to do more.

The Affordable Care Act (ACA) (popularly known as Obamacare) has not been repealed; thus, it remains in effect for 2017 and 2018. This will impact your 2017 individual income tax return that you file in 2018.

You Must Tell the IRS Whether You’ve Complied with Individual Mandate

Obamacare requires all individuals to have minimally adequate health insurance, subject to certain exemptions. If you’re not exempt and fail to obtain coverage, you must pay a tax penalty to the IRS (called the individual shared responsibility payment). The IRS has announced that when filing 2017 tax returns in 2018, taxpayers must indicate whether they and everyone on their return had coverage, qualified for an exemption from the coverage requirement, or are paying the tax penalty with their return. For the first time, starting in 2018, the IRS will not accept electronically filed tax returns that do not address the health coverage requirements. Returns filed on paper that fail to do so may be suspended and any refunds delayed.

If You Had Regular Health Insurance During the Year

If you and your dependents had qualifying health insurance coverage for all of the prior year through a source other than the federal health insurance exchange (healthcare.gov) or one of the state exchanges, all you need do is check the ”Full-year coverage” box on Form 1040, 1040A, or 1040E. Most filers fall into this category. This would be the case, for example, if you obtained coverage through your employer.

Qualifying coverage includes coverage under most types of health care plans, including coverage that the majority of Americans obtain through their employers. If you’re not sure if you had qualifying coverage, check out the IRS chart at its Individual Shared Responsibility Provision - Minimum Essential Coverage webpage.

If you had qualifying coverage, you should be sent one of two information returns: IRS Form 1095-B, Health Coverage, or Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. These forms show who was covered and when. Form 1095-B is sent to you by your health insurer if you obtained coverage directly from the insurer. Form 1095-C is sent by employers to employees who were offered health coverage through them. Only employers with 50 or more full-time equivalent employees must send this form.

You should receive these forms by February 28, 2018, or April 2, 2018 if filed electronically. You need not file either form with your return; just keep it with your tax records. In fact, the IRS says that if you don’t receive the form by the deadline, you should go ahead and file your tax return as usual.

You Obtained Obamacare Health Coverage

If you obtained health coverage for yourself and your family for the prior year through the federal health exchange or one of the state health insurance exchanges (also called marketplaces), you should receive IRS Form 1095-A, Health Insurance Marketplace Statement. The exchange prepares and sends this form to individuals who enrolled in coverage there; it also sends a copy to the IRS. Form 1095-A is supposed to be postal mailed by the health exchanges by February 1. However, if you elected to receive the form electronically, you’ll be able to download it from your health exchange website. If you don’t receive this form by early February, contact your health insurance exchange. You will need the information on this form to complete your income tax return. You need not file Form 1095-A with your return, but you should keep it with your tax records.

Form 1095-A shows the type of health coverage you and your family received, how much it cost, and the amount of advance premium payments, if any, that were paid each month to your health insurer on your behalf by the federal government. Now, here comes the tricky part. If, like most people who obtained Obamacare coverage, you qualified for health insurance premium subsidies and had them paid in advance to your health insurer, you need to determine if the amount of the subsidies that were paid was correct. This depends on your modified adjusted gross income as shown on your return for the year.

When you applied for Obamacare subsidies, you made an estimate of what your income would be for the year. If this estimate turned out to be accurate, there’s no problem. But if the estimate was too low, you may have to pay back part (or even all) of the premium payments made on your behalf. On the other hand, if your estimate was too low, you could qualify for extra premium payments which the IRS will pay to you. Reductions in your family size during the year, such as a divorce or death, could also result in you having to pay back all or some of the subsidies.

The amount you’ll have to pay back depends on your annual family income. If your income was below 400% of the federal poverty level, there is a cap on the amount you’ll have to pay back, even if you received more in assistance than the amount of the cap. However, at higher income levels you’ll have to pay back the entire amount you received. You list the amount you have to repay in the “Tax and Credits” portion of your return and pay it with the rest of your income taxes.

You calculate whether the advance premium payments were correct on IRS Form 8962, Premium Tax Credit, which you must file with your return. Calculating whether the premium payments were correct is complex and something few taxpayers will be able to do with paper and pencil. If you prepare your taxes yourself, you should use tax preparation software such as TurboTax to help you complete this form.

You Were Uncovered for All or Part of the Year

If you or your dependents had no health coverage during all or part of the prior year or coverage that was not qualifying coverage, you may have to pay a penalty to the IRS, unless you fall within an exemption from the individual mandate. For the vast majority of taxpayers, the penalty for failure to have coverage during 2017 is $695 per adult and $347.50 per child under 18 (up to a maximum of $2,085 per family). Instead of the set fee penalty, a penalty of 2.5% of household income must be paid if this is more than the set fee; but this applies only to higher income taxpayers. This percentage penalty is capped at $3,625 for an individual and $16,320 for a family of five or more.

The penalty is prorated if you had coverage for part of the year. You will not be subject to the penalty if you're uninsured for less than three months in a given year. If you have coverage for only one day of a calendar month, it counts as coverage for that month. So if you're uninsured for two months in a row and obtain coverage on the last day of the third consecutive month, you will not owe a penalty.

For more details on calculating the penalty, see the IRS Individual Shared Responsibility Provision – Reporting and Calculating the Payment page. If you owe a penalty with your tax return, the amount due is reported on Form 1040 in the Other Taxes section, or in the corresponding sections of Form 1040A and 1040EZ. You include your payment with your return.

You Were Exempt from the Obamacare Individual Mandate

If you failed to obtain health coverage for yourself and your family, you may be exempt from having to pay the no-coverage penalty. There are around 20 different exemptions. The most commonly used exemption is for lower income individuals who would have to pay more than 8.13% of their household income for the most affordable coverage. You are also exempt if your income was less than the amount required to file an income tax return—for 2017, this is $10,350 for singles and $20,700 for marrieds filing jointly.

The healthcare.gov website has a useful exemptions tool you can use to determine if you qualify for an exemption. Experience has shown that a majority of taxpayers qualify who fail to obtain health coverage qualify for an exemption.

You can apply for many of the more common exemptions directly on your tax return. These include the exemption for people who can’t afford coverage, or if you had a coverage lapse of three months or less. Other exemptions must be applied for through your health insurance exchange, which will issue an exemption certificate you attach to your return. If you apply for an exemption, you must complete IRS Form 8965, Health Coverage Exemption, and attach it to your return.

The IRS has set up a special section at IRS.gov/aca with more information about the Affordable Care Act and your income tax return.

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