Affordable Care Act’s Impact on Individual Tax Returns

While many employers are scrambling to comply with the requirements of the Affordable Care Act’s (ACA) employer mandate that goes into effect beginning in 2015, individuals are dealing with the implications of the other half of the ACA’s “shared responsibility” provision—the individual mandate. The IRS and HHS have both recently issued materials and plan to offer additional tools to help educate individuals about how the ACA will affect tax returns in upcoming filing season (for the 2014 tax year).

Although employers will want to be careful not to give tax advice, it is often helpful to have the answers to basic employee questions and to be able to easily locate resources for employees who need more in-depth information.

Fortunately for many taxpayers, the ACA’s changes won’t have much of an impact on tax filing this year. Individuals who had health coverage through an employer-sponsored group plan, Medicare, Medicaid or an individual policy purchased outside of the Marketplace will simply check a box on their federal returns and will not need to fill out any additional tax forms.

Individuals who purchased Marketplace coverage will receive a form (1095-A) that will be used to claim premium tax credits or reconcile returns with any advance credit (subsidy) payments previously received. A taxpayer who received advance credit payments, but is ineligible for those credits based on the information reported on his 2014 return, will need to increase his tax liability by the amount of the advance credit payments he had erroneously received.

The plans described above (including employer-sponsored coverage) qualify as minimum essential coverage and participants will satisfy the individuals shared responsibility requirement. Taxpayers who did not maintain minimum essential coverage during 2014 and do not qualify for an exemption will be subject to payment of a fee, which will be the greater of:

  • 1% of household income above the taxpayer’s return filing threshold, or
  • $95 per adult and $47.50 per child (up to a maximum of $285).

Employers should recommend that employees consult with their tax preparers and/or legal counsel for guidance appropriate to their individual situations.

Additional Resources:

IRS Publication 5187—“Health Care Law: What’s New for Individuals & Families”—“How health coverage affects your 2014 federal income tax return”

Individual Shared Responsibility Provision-Exemptions

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About Dawn Kramer

Dawn is an attorney and Certified Employee Benefit Specialist (CEBS) in J.W. Terrill’s Consulting Services department. She advises clients on legal and regulatory issues affecting their employee benefit plans.

View all posts by Dawn Kramer

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