Affordable Care Act Provisions Affecting Individuals

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Affordable Care Act Provisions Affecting Individuals

Fact Sheet 2014-09, November 2014

IRS has released a Fact Sheet providing details on key provisions of the Affordable Care Act (ACA) that first went into effect at the beginning of this year. IRS notes that the most important ACA tax provision for individuals and families is the premium tax credit and that individuals without coverage and those who don’t maintain coverage throughout the year must have an exemption or make an individual shared responsibility payment. These provisions will affect 2014 income tax returns filed in 2015.

Tips for taxpayers. Before delving into the details of the credit, individual shared responsibility payment, and the exemptions, the fact sheet sets forth these tips for taxpayers:

  • IRS is conducting an information campaign to educate taxpayers about some of the basics of the ACA. This campaign will include health care tax tips, YouTube videos, and expanded ACA web pages on IRS’s web site.
  • Whether individuals received advance payments of the premium tax credit or are claiming an exemption from the individual shared responsibility provision, they should consider e-filing their tax return.
  • Most people already have qualifying health care coverage. IRS expects the vast majority of taxpayers—well over 100 million tax filers—will only need to check a box to indicate that they satisfy the individual shared responsibility provision when they file their tax returns in early 2015.
  • Individuals who don’t maintain coverage throughout the year must have an exemption or make an individual shared responsibility payment with their returns.
  • Individuals and families who get coverage through the Health Insurance Marketplace (Marketplace) may be eligible for the premium tax credit. Eligible individuals and families can choose to have advance credit payments paid directly to their insurance company to lower what they pay out-of-pocket for their monthly premiums.
  • An individual who received advance credit payments must reconcile them with the amount of the premium tax credit actually allowed on the federal income tax return.

Premium tax credit. The Fact Sheet provides these details about the premium tax credit.

  • Individuals and families who get coverage through the Marketplace may be eligible for the premium tax credit.
  • In general, an individual who purchases coverage through the Marketplace may be eligible for the premium tax credit if he: (1) is not eligible for other qualifying coverage, such as government-sponsored coverage or certain employer-sponsored coverage; (2) is within certain income limits; (3) does not file a married filing separately tax return unless he meets certain criteria; and (4) cannot be claimed as a dependent by another person.
  • Individuals and families can have advance credit payments paid directly to the insurance company to lower their premium cost, or they can wait to claim the credit when they file their federal income tax return.
  • Anyone receiving advance credit payments should report changes in circumstances—such as getting married or getting a new job—to the Marketplace. Reporting changes will help make sure taxpayers get the proper type and amount of financial assistance and will help them avoid getting too much or too little in advance.
  • An individual who receives advance credit payments in any amount or who plans to claim the premium tax credit must file a return for the year. An individual who received advance credit payments will reconcile them with the amount of the premium tax credit actually allowed on the return. If the premium tax credit computed on the return is more than the advance payments, the additional amount of the credit will increase the refund or lower the amount of tax owed. If the credit on the return is less than the amount received in advance, the individual will have to repay the excess advance payments, and that repayment will increase the amount owed or result in either a smaller refund or a balance due.
  • Early in 2015, individuals who bought health insurance through the Marketplace will receive Form 1095-A, Health Insurance Marketplace Statement, which includes information about their coverage and any premium assistance received. Form 1095-A will help individuals complete their return.
  • Individuals claiming the premium tax credit, including those who received advance payments of the premium tax credit, must file a federal income tax return for the year and attach Form 8962, Premium Tax Credit (PTC).

Individual shared responsibility provision. The Fact Sheet includes these details on the individual shared responsibility provision.

  • Most people already have qualifying health care coverage and therefore don’t need to do anything more than continue their insurance coverage throughout the year.
  • Individuals who don’t have qualifying coverage and who don’t have an exemption may have to make an individual shared responsibility payment when they file their federal income tax return.
  • Qualifying coverage includes most employer-sponsored coverage, coverage obtained through a Marketplace, coverage through most government-sponsored programs, as well as certain other plans.
  • For 2014, the payment amount is the greater of: (a) 1% of the household income above the taxpayer’s filing threshold, or (b) $95 per adult plus $47.50 per child (limited to a family maximum of $285). This payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace.
  • The Form 8965 instructions provide the information needed to calculate the payment where an individual or member of his household did not have health care coverage or an exemption for any month.

Coverage exemptions. The Fact Sheet provides these important details about coverage exemptions.

  • Those who go without coverage or experience a gap in coverage may qualify for a coverage exemption if one of the following applies: (1) they do not have access to affordable coverage; (2) they have a gap of less than three consecutive months without coverage; or (3) they qualify for one of several other exemptions, including a hardship exemption.
  • How individuals get an exemption depends upon the type of exemption. They can obtain some exemptions only from the Marketplace in the area where they live, others only from the IRS when they file their income tax return, and others from either the Marketplace or IRS.
  • Individuals will use Form 8965, Health Coverage Exemptions to report a coverage exemption granted by the Marketplace or to claim a coverage exemption on their tax return.

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