Health Care & Taxes (February 2016)

Tax Tips

Health Care and Taxes

By Michael Aston, E.A.

Alhambra Tax Center

We are going into the second year of ACA, “Obama Care”, and most people are still confused on how it will affect their taxes.

For taxpayers that went through Covered California or any other state or federal marketplace in 2015, should be sent a 1095-A by January 31, 2016.  The taxpayer should include form 8962 (Premium Tax Credit, PTC) with their tax return.  If a taxpayer files a tax return without 8962 and getting a refund, the taxpayer will receive a letter in the mail about 2 to 4 weeks asking for them to send in form 8962.  Once sent to the IRS it may be another 6 to 8 weeks for the IRS to process and issue the refund.  If the taxpayer is in a rush for their refund it would benefit to wait until they receive the 1095-A before filing.

Taxpayers that went through the marketplace will have their insurance subsidized in a form of a tax credit.  This tax credit can be taken in one of two ways.  The most common option, the credit is given to the insurance company instead of the taxpayer.  For example, let’s say based on the taxpayer’s income, the premium is $200.00 and the credit is $150.00.  The Taxpayer would pay $50.00 and the Federal Government will pay $150.00 per month.  The next option is the Taxpayer pays the full $200.00 per month and then receive a refund of $1800.00, or $150.00 per month.

Form 8962 is a reconciliation of your income and PTC.  When applying for the insurance through the marketplace the taxpayer gives an estimate of their income for the next year.  For example, in November 2014, the taxpayer would estimate their 2015 income for 2015 insurance.  With the 8962 the IRS will figure if you got the correct credit.  If the taxpayer estimated is $30,000 and they actually made $40,000 they will owe money.  If they estimated $40,000 and received only $30,000 they will get an additional credit.  It is very important that the marketplace is notified of any increase or decrease of income throughout the year.

In January 2016, the IRS started sending out CP Letter 5599 to all 2014 1095-A recipients that did not file form 8962.  If a taxpayer gets this letter they should contact a tax professional to do a 2014 amended return.  Those that do not meet this obligation may lose the PTC in the future.

For taxpayers that had insurance outside the marketplace for their tax household all 12 months in 2015, there will be no credit or penalties, these taxpayers will receive a 1095-B or 1095-C.   This year they do not have to wait to receive the 1095’s to file.  In a situation they did not have insurance for all 12 months, they may have a penalty but should consult a tax preparer to see if they are eligible for an exemption.