How to Report Health Care Coverage on Your 2014 Tax Return
If tax returns weren’t complicated enough, we will now have the first-time appearance of the individual shared responsibility (ISR) provisions of the Affordable Care Act (ACA).
This boils down to taxpayers reporting if they got a credit and how much — and if not, did they pay for their insurance and did they avoid the “penalty” for not carrying insurance under the ACA.
Don’t hold your breath either. Although Congress is threatening to repeal portions of the ACA (aka “Obamacare”), it certainly won’t happen before you and I need to report and file our 2014 tax returns.
To our rescue, the IRS has released the new Publication 5187 (“Health Care Law: What’s New for Individuals & Families”) to help us through the minefield of these new regulations on our tax return. If you can’t sleep tonight or really want to read it, here is a link to the Publication 5187.
Who is subject to the ISR rules? All U.S. citizens are subject to the ISR rules, as are all non-U.S. citizens who are in the U.S. long enough during a calendar year to qualify as resident aliens for federal income tax purposes.
Foreign nationals who live in the U.S. for a short enough period that they do not become resident aliens for tax purposes are exempt from the ISR provision even though they may have to file a U.S. income tax return.
What must be reported on the tax return? All individuals subject to the ISR rules use their 2014 income tax return to:
- Report that they have qualifying health care coverage (also called minimum essential coverage)
- Show they qualify for an exemption from coverage
- Make an individual shared responsibility payment.
What is minimum essential coverage? This is a health care plan or arrangement specifically identified in the law as minimum essential coverage, including:
- Employer-sponsored coverage under a group health plan (including self-insured plans)
- Specified government-sponsored programs (e.g., Medicare Part A, Medicare Advantage, most Medicaid programs, Children’s Health Insurance Program (CHIP), most TRICARE programs (for eligible active and retired service members), and comprehensive health care coverage of veterans)
- Individual market coverage (e.g., a qualified health plan purchased through the Marketplace or individual health coverage purchased directly from an insurance company)
- Grandfathered health plans (in general, certain plans that existed before the ACA and have not changed since the ACA was passed)
- Other plans or programs that the Department of Health and Human Services (HHS) recognizes as minimum essential coverage for the purposes of the ACA.
How to report minimum essential coverage: Taxpayers whose entire tax household had minimum essential coverage for each month of their tax year will indicate this on their federal income tax return by simply checking a box on their Form 1040, 1040A, or 1040EZ.
On Form 1040, they’ll check the “full year coverage box” at Line 61: “Health care: individual responsibility (see instructions).” No further action is required.
How to report exemptions from health coverage: If you qualify for an exemption and don’t have to carry insurance under ACA, you can claim coverage exemptions on Form 8965, Health Coverage Exemptions, and attach it to Form 1040, Form 1040A, or Form 1040EZ.
Individual shared responsibility payments: This is the nice title the government has come up with for the term “penalty” for not carrying insurance.
Thus, a taxpayer will need to make an individual shared responsibility payment (SRP) when filing his federal income tax return if anyone in his household does not have minimum essential coverage and does not qualify for a coverage exemption.
For 2014 (to be paid on your 2014 tax return), the annual SRP amount is the greater of:
- 1% of the household income that is above the tax return filing threshold for the taxpayer’s filing status
- The family’s flat dollar amount, which is $95 per adult and $47.50 per child (under age 18), limited to a family maximum of $285.
Beware: Taxpayers owe 1/12th of the annual SRP for each month they or their dependent(s) do not have coverage and do not qualify for a coverage exemption.
How to report individual shared responsibility payment: The ISR payment is computed on a worksheet in the instructions to Form 8965 and is entered on Form 1040, line 61; Form 1040A, line 38; or Form 1040EZ, line 11.
Publication 5187 notes that IRS is prohibited from using liens or levies to collect any ISR payment. However, if taxpayers owe such a payment, the IRS may offset that liability with any tax refund that may be due to them.
In summary, this is something not to be trifled with. Congress designated the IRS to collect the penalties for not carrying insurance, and so we must report on our tax return — honestly, mind you — the type of insurance coverage we had during the year. If audited, we will need to prove this.
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