The Affordable Care Act (“ObamaCare”) will make filing your 2014 income tax return a whole new ball game from years past. Be prepared for the tax man to get even more personal this year — with questions about your health insurance.
There’s a whole new set of IRS rules you’ll need to pay attention to. For the first time, you’ll have to state whether you had health insurance, through an employer, one of the exchanges or purchased privately. And if you didn’t, you could face a penalty.
Have insurance? No Problem! Just check the box “Full coverage” on your 2014 tax return . Sounds simple, but there’s a hitch, because “Full coverage” may not actually mean what you think it does. What it really means is:
- You had coverage, plus
- All your dependents had coverage, plus
- You and each and every one of your dependents had that coverage all 12 months of the year.
If you and/or (all of) yours missed a month (or three) due to a job change, financial challenges, a misunderstanding between you and your ex-spouse…whatever… you’ll have to pay a penalty (called a Shared Responsibility Payment) as part of this years tax return.
So…how much is the penalty you’ll have to pay?
The calculation of the penalty is done on a new IRS form you’ll have to fill out this year, Form 8965. Bottom line, the penalty is the greater of 1 percent of your household income above the threshold for filing taxes or what the Internal Revenue Service calls “your family’s flat dollar amount” — $95 per adult and $47.50 per child, with a family maximum of $285 in 2014.
However, the average penalty for the 2014 tax year is expected to be higher — $301, according to Sacha Adam, health care team leader at Intuit, maker of TurboTax. Under the law, those fines will go up for people who remain uninsured in 2015, to about $590 on average.
There’s another new IRS form to fill out if you’ve bought insurance from the “marketplace” (ie, one of the new online exchanges). It will help you determine if you deserve a tax credit to help you pay for your insurance, or conversely, if you were overpaid the premium tax credit and have to reimburse the government through an additional tax liability when you file.
“There’s a lot to look for. It is kind of complicated,” said Barbara Weltman, contributing editor to the tax guide “J.K. Lasser’s Your Income Tax 2015.”
Where can you go for help?
One option is to have a tax preparer assist you. The taxes and/or penalty you save can more than pay for his/her professional fee. (If we can help, just email us and let us know). A second option is to rely on tax software to walk you through the new rules. But even the tax software companies are feeling the pinch. Multiple news outlets are running stories, for example, on how Turbo Tax customers are angry over changes in the software. A third option is to hunker down and educate yourself on the new rules. The IRS has a page on its website devoted to the Affordable Care Act, http://www.irs.gov/Affordable-Care-Act. They also have a new publication, IRS Publication 5187, Health Care Law: What’s New for Individuals and Families that outlines all the details on the new regulations.