Health insurance became a "tax thing," when the Affordable Care Act law was enacted on March 23, 2010. It makes the highway of life a little tougher to travel, at least with regard to taxes. For most taxpayers, the only change will be reporting their coverage on Form 1040. However, for the taxpayers who cannot simply check the box for coverage the road gets a little more complex.
Exit 1 off this part of the highway, applies to about 80% of Americans. If you, your spouse, and any dependents had health insurance for every month of the tax year then you will check the box on your tax return for "Full-year coverage." This option is available on Form 1040, 1040A, and 1040EZ and you do not have to include proof of insurance with your return.
A little more travel time and we are at Exit 2, where the 6% of Americans who bought insurance on the Marketplace must file Form 8962, Premium Tax Credit and reconcile their actual tax credit with any advance payments of the credit paid to their insurance company during the year. Generally, there are two routes. Route one, if you had life changes during the year and you made less money or added a new member to your household. You may be entitled to more of a tax credit than the advance payments sent to your insurance carrier during the year. Since your actual credit is greater than your advance credit payments, you will get the additional amount either as a higher refund or lower tax due. However, you need to take the other route if your circumstances changed during the year and you had additional income available or less family members, which could mean you need to pay back some of the advance credit that was paid to your insurance company to offset your premium payments. Use Form 8962, to claim the credit and do the reconciliation.
And then there is the road less traveled, Exit 3, where GPS may come in handy, if you or your spouse, or your dependents, didn't have qualifying health insurance for every month. You may be subject to a penalty on each uninsured family member during the year unless you, or your family members, qualify for an exemption to the penalty. Form 8965, Health Coverage Exemptions is where you can indicate you are exempt from the requirement to have coverage. Some coverage exemptions are available only from the Marketplace, others are available only by claiming them on your tax return, and others are available either from the Marketplace or by claiming them on your tax return. When the Marketplace grants an exemption, you should have received an Exemption Certificate Number (ECN) that you write in Column C of Part I. And, to claim a coverage exemption when your income is below your filing threshold, you will use the same form, just complete, Part II, Coverage Exemptions for Your Household Claimed on Your Return instead of Part I. Now, if you are claiming other coverage exemptions (and there are a number of them you may qualify for), then you must enter the exemption type and periods for each individual. Not as easy as that "I've got coverage checkbox."
If you don't qualify for exemptions for the period of the year you aren't covered and you don't have insurance for the full year, you must pay the Individual Shared Responsibility Payment aka, "The Penalty." The penalty is $95 per uninsured adult, $47.50 per uninsured child, up to $285 OR almost 1% of your income, whichever is HIGHER. The maximum penalty per person is $2,448 or a family total of $12,440. Figuring this out, is almost as frustrating as being caught in a traffic jam! At least there is a worksheet to calculate the penalty available in the Form 8965 instructions.
If you don't get to take Exit 1, or have questions about whether you owe a shared responsibility payment with your tax return or if you are must repay some of your advance premium tax credit payment, it might be best to consult a tax pro. Wishing you safe travels.