Taxpayers should not put aside the tax provisions of the health care law because it will affect the 2014 income tax returns. Every taxpayer is affected by this individual shared responsibility provision. And some other taxpayers are affected by the premium tax credit if they purchased the health coverage through the marketplace.
Each taxpayer is responsible to do at least one of the three responsibilities of the Affordable Care Act individual shared provision.
Here are the three responsibilities:
- To have qualifying health insurance coverage every month throughout the year
Although IRS rules do not oblige the taxpayers to attach documents to prove the insurance coverage, there are some documents you need to keep along with your tax records. If you use tax preparer’s service, you need to show them these documents prior to filing. Plus, you may need some information on these documents for future reference. See the Gathering Your Health Coverage Documentation page on IRS.gov for further details.
There are many types of coverage you can have. Generally, they are divided into employer-sponsored coverage (such as Federal Employees Health Benefit program, a self-insured group health employee program, or retiree coverage), individual health coverage (which is purchased directly from an insurance company, or through Health Insurance Marketplace, or provided through a student health plan, etc.), under government-sponsored program coverage (such as Medicare, most Medicaid coverage, Refugee Medical Assistance, Peace Corps volunteers, etc.), foreign coverage, business owner coverage, and some other certain coverage with limited benefits that don’t qualify as minimum essential coverage (such as pregnancy-related coverage, tuberculosis related services, stand-alone dental and vision insurance, workers’ compensation insurance, accident or disability income insurance, etc.).
- To have a coverage requirement exemption
On the IRS.gov website, check the “Am I Required to Make an Individual Shared Responsibility Payment?” tool to find out if you are qualified for an exemption. Then you can claim it using Form 8965 (Health Coverage Exemption form) attachment. Getting the coverage exemption depends on the type of exemption itself. Some can only be granted by marketplace, claimed on tax return, or both.
Exemptions that can only be granted by marketplace are for members of certain religious sects, general hardship, if the coverage is regarded not affordable based on estimated income, for taxpayer who has identified ineligible for Condition Medicaid programs in situations that did not increase Condition Americorps coverage, Medicaid coverage and for those who unable to renew the existing coverage.
The exemptions that can only be claimed on tax return are when the coverage is considered unaffordable, for a taxpayer with short coverage gap, if the income is below the return filing threshold, for the taxpayer who is a citizen living abroad, for a taxpayer with his aggregate self-only coverage is considered unaffordable, when there is gap in coverage at the beginning of 2014, for any resident of a state that did not expand Medicaid, if there is a gap in CHIP coverage, if the Medicaid and TRICARE program benefits are not the minimum essential coverage, and for employer with non-calendar plan coverage beginning in 2013.
Three exemptions can be both granted by marketplace and claimed on tax return. They are for members of a health care sharing ministry, members of Indian tribes, or for those incarcerated.
- To make individual shared responsibility payment when you file the federal income tax return
When you are not qualified for a coverage exemption or you don’t have basic health coverage (or the minimum essential coverage), you need to make individual shared responsibility payment when you file the federal income tax return. The amount of your annual payment is either a fixed dollar amount or the percentage of your household income, whichever is greater. If you (and your dependents, if any) don’t have coverage and exemption (or any of them), you owe 1/12th of the payment.
If you are like most of other taxpayers, you will be qualified in the first responsibility and you just have to tick the check box on your return to indicate that you have the qualifying health care coverage. However, if you are not, go through the filing process and see more information on IRS.gov/aca.
