Affordable Care Act

2014 saw the implementation of the Affordable Care Act (ACA), the ACA has been the topic of heated political discourse over the past couple of years; the fact is that it is the law and one with which we must comply. While the ACA deals with health care, Congress has chosen to delegate a significant portion of the compliance under the law to the tax system, which is administered by the Internal Revenue Service.

There are three portions of the ACA which will impact the preparation of your tax return and the resulting tax liability.

Coverage – All United States persons must be covered by some form of health care insurance. If they are not covered, and do not qualify for one of the exemptions, they may be subject to the health care individual responsibility payment, which will be calculated and included in the tax return. Those whose health care coverage was obtained through the ACA Marketplace will be receiving Form 1095-A — Health Insurance Marketplace Statement, which will detail the coverage and premium information. If you had coverage through an employer, you may receive Forms 1095-B and 1095-C.

Exemption – Certain individuals are exempt from ACA coverage, and that exemption will be reported on Form 8965. Practically speaking, the exemption will apply most often to those residing outside of the United States and those who cannot afford coverage. The ability to afford coverage is an objective rather than a subjective test.

Premium Credit – Certain individuals will qualify for a Premium Credit, the intent of which is to reduce the cost of health care coverage for those of lower income. The credit will be computed as a part of the preparation of the tax return, reducing the tax liability. Those who purchased coverage through the ACA Marketplace may have been granted an estimated credit, reducing the premiums paid. This estimated credit is treated in a way similar to income tax withholding from your salary. The credit computed in your tax return will be reduced by the estimated credit granted by the ACA Marketplace and reported on Form 1095-A. If the estimated credit is less than the actual credit, the additional amount will be claimed on the tax return. On the other hand, if the estimated credit is greater than the actual credit, the difference must be repaid in the tax return. This will cause some surprises. The Credit will be computed on Form 8962.

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