08/05/2014 11:20 am ET | Updated Oct 05, 2014

The Relationship Between Taxes and Health Care: 5 Things You Need to Know

While the Affordable Care Act (ACA) officially rolled out in January 2014, most people are unaware that health care and taxes are linked together like never before. Many of the tax provisions under the ACA went into effect on January 1, 2014. This means, when you file your 2014 taxes in January 2015, you may notice some changes on your 2014 taxes. To break down those changes, here are five things you need to know about the relationship between your taxes and health care.

1. You'll have to prove you either have health insurance or are exempt when you file your taxes. When you file your 2014 federal income tax return in 2015, you'll be required to provide information about your health insurance coverage or an exemption from the requirement. If your employer pays for employer-sponsored group health plans, that amount will now be reported on your 2014 W-2. While employers are required to report it, the amount doesn't impact your tax liability and your employer's contribution to the health plan will not change the taxable income amount.

If you qualify for an exemption from purchasing health insurance and the associated tax penalty for not purchasing health insurance, you may have to apply and gain approval for the exemption through the Health Insurance Marketplace depending on the type of exemption you have. This approval process can take a couple weeks, so apply for the exemption as soon as possible so it will be documented and allow you to file your taxes as soon as tax season begins. You'll receive an exemption certification number that you'll need when you file your taxes.

2. You may receive new tax forms to verify your health coverage. If you purchase insurance through the Health Insurance Marketplace, you will receive a new form at tax time, Form 1095-A, which will show details of your insurance coverage like the effective date, amount of premium, and the advance premium tax credit or subsidy.

Although not required for 2014 taxes, you may also receive forms 1095-B or 1095-C used to report insurance coverage from agencies outside the Marketplace and employers.

3. You could face a tax penalty if you don't have health insurance. If you didn't have health insurance by the March 31, 2014 open enrollment deadline, you could receive a tax penalty. The tax penalty will be prorated based on how long you are uninsured and will increase each year. However, there is no penalty for a gap in coverage of less than three months. If you didn't purchase health insurance by the open enrollment deadline, this TurboTax penalty calculator can help estimate your tax penalty that will be assessed on your 2014 taxes (the ones you file in 2015).

4. There may be tax credits available to help pay for insurance. Open enrollment for 2014 ended on March 31, 2014, but you may be eligible for a government subsidy in the form of an advanced premium tax credit if you purchase your health insurance through the online Marketplace during the next open enrollment period for 2015. Unlike most tax credits, you won't have to wait to receive the tax credit or subsidy as it can be applied to your health insurance premium in 2015 when coverage begins. If you have a qualifying life event, you may also be eligible to sign up for health insurance in the Health Insurance Marketplace outside of the open enrollment period and receive a subsidy for 2014.

5. You'll need to file your taxes to report the subsidy. One of the most notable changes you could see is if you purchased health insurance through the Health Insurance Marketplace and received a subsidy to lower the cost of your health insurance. New this year, you'll need to file your taxes to reconcile the subsidy you received.

You could end up with a bigger tax refund or a lower one or a balance due since your subsidy for 2014 was based on your projected household income. If you overestimated your 2014 household income, you may receive the remainder of the subsidy in the form of a tax credit when you file your taxes. However, if you earn more than you projected, your tax refund may be lower.

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