ACA 2015 Guide: Everything You Need to Know When Preparing Individual Tax Returns

Tax Law and News health care and taxes

This is the second year taxpayers will need to prove they have health insurance coverage under the Affordable Care Act. The IRS has issued a few new provisions this year to ensure everyone reports their health insurance coverage status. To make sure you are up to speed on keeping your clients in compliance with the law, we’re introducing the Affordable Care Act Resource Center, which includes checklists for you – the tax professional – as well as helpful, easy-to-understand guides you can share your individual clients. So, what do your clients need to know about how health insurance and the ACA will impact this year’s tax return?

For the Insured: The 1095’s

There are three forms that the IRS will be sending to taxpayers that include information on their healthcare coverage for 2015: the 1095-A, 1095-B and 1095-C. Which form your client may receive depends on what type of coverage they have:

  • 1095-A: This form is distributed to anyone who purchased health insurance from the Marketplace. Your client will need to bring you this form for you to complete their return.
  • 1095-B: This form is distributed to those employed by companies with under 50 employees, to those who have private health insurance and to those who received government sponsored health insurance, such as Medicare, Medicaid or TriCare. While it’s important that your client check the form for accuracy, they will not need to wait for it to file their taxes. If there is any doubt on coverage throughout the year, you can easily check their health insurance status using their W2, paycheck stub or insurance card.
  • 1095-C: This form is distributed to those who received health insurance through an employer with more than 50 employees. It’s important to note that they may receive this form even if they declined coverage from their employer and chose coverage elsewhere. In those cases, they may receive both the 1095-B and 1095-C. Again, they won’t need these forms for you to complete their return, but it is important that they check it for accuracy and save for their records.
  • Taxpayers don’t need to wait for either Form 1095-B or C to file their income tax returns – just advise your clients to check the forms for accuracy once received, and keep it for their records. If a taxpayer and their entire family were covered for the entire 2015 year, tax pros may check the full-year coverage box on their return. Tax preparers can also use other forms of documentation, in lieu of the Form 1095 information returns, to prepare tax returns, such as insurance cards, explanation of benefits, statements your insurer, W-2 or payroll statements reflecting health insurance deductions, records of advance payments of the premium tax credit, and other statements indicating that a client had health care coverage.

Reconciling Advanced Premium Tax Credits

If you have a client who received health care coverage through the Marketplace and chose to receive assistance in the form of an Advanced Premium Tax Credit, you’ll have to reconcile their income using Form 8965. Intuit professional tax software will easily handle these calculations for you. However, it’s important to let your client know if they underestimated their income and used all of the APTC’s given to them. It’s likely that they’ll owe money back or receive a smaller refund.

For the Uninsured: There are Options

What if your client was uninsured? It’s likely they’ll face a penalty, but there are still some options.

First, you should see if they might be eligible for an exemption. The most common exemption is financial hardship, which your software will help you identify. But, they may also be exempt if they are a member of a federally recognized tribe or religious sect, if they were uninsured for less than two consecutive months, or if they lived in a state that didn’t expand its Medicaid program.

If your client was uninsured in 2015 and they didn’t qualify for an exemption, the penalty is $325 per adult ($162.50 per child), or 2 percent of household income, whichever is greater. It’s important that you remind them that next year, the penalty for not having coverage will drastically increase to $695 per adult ($342.50 per child), or 2.5 percent of their household income, whichever is greater.

There are still a few weeks left in Open Enrollment on the Marketplace, so you should encourage them to take advantage and sign up if they are looking for coverage.