The Affordable Care Act (ACA) and reporting your Health Care Coverage

The ACA's Impact on Your Taxes

The Affordable Health Care Act (ACA) has an effect on the taxes of many individual taxpayers. In some cases this effect is significant, but in many cases it is not. According to an estimate by the federal government, only 15% of Americans who have health insurance will see notable changes in their taxes. In general, the most significant modification stems from the Individual Shared Responsibility provision and tax credit, which is associated with ACA.

Individual Shared Responsibility Provision

Prior to 2018, unless an individual is granted an exemption, the Individual Shared Responsibility Provision, also known as the Individual Mandate, required a person and his/her family members to have at least minimum essential health care coverage. If the taxpayer did not maintain this coverage for a full year, and didn’t file for an exemption, he/she was assessed a penalty.

The ACA's Individual Mandate penalty, was reduced to $0 at the end of 2018. In most states, people who have been uninsured since the beginning of 2019 are no longer penalized. However, as of 2022, there are still penalties for being uninsured in Massachusetts, New Jersey, California, Rhode Island, and the District of Columbia.

The IRS allows individuals to qualify for a health coverage exemption in certain circumstances. It also allows taxpayers to make a shared responsibility payment with their federal income tax return for months they were without coverage or had an exemption. You obtain exemptions from either the Marketplace or IRS depending on the type. All exemptions are reported on the tax return. If you don't have to file a return, because your income is below your filing threshold, you are automatically exempt. For more information about specific exemptions, refer to IRS Publication 5172.

Premium Tax Credits

Individuals who purchase coverage and are not covered by their employer may qualify for a Premium Tax Credit (PTC). The size and eligibility of an ETC depends on the taxpayer's income, family size, geographic area, age, and filing status. For instance, older individuals typically receive larger premium credits than those who are younger. Similarly, people who reside in a state with a high cost of living may also receive a larger premium credit than those who reside in a state with a low cost of living (all other factors being the same).

If a person is eligible, they can elect to receive the tax credit paid directly to their insurance company in an effort to reduce/eliminate monthly premiums. If this option is not chosen, when he or she files their tax return they may take advantage of the credit.

Please note individuals who choose to receive their PTC in advance, to reduce/cover monthly premiums may be required to repay some of it, if their end of year income is greater than originally estimated.

Health Care Coverage and Forms 1095-A, 1095-B and 1095-C

The ACA brought on new reporting requirements. This is reported using a form called a 1095. There are currently three variations of the 1095 tax form. While you should wait to receive your 1095-A to file your taxes, if you are expecting it – you do not necessarily also have to wait for the 1095-B or 1095-C in order to file. It’s possible that taxpayers may not receive their B or C forms by the time they are ready to file and they can use other forms of documentation including insurance cards, statements from your insurer or payroll deduction statements reflecting health insurance deductions among others. The type of form you receive will depend on how insurance was obtained:

  • Form 1095-A is provided to the taxpayer by the Marketplace, when insurance is obtained through the Health Care Marketplace or Exchange. According to the IRS you will need the information on Form 1095-A to complete Form 8962 to reconcile any advance payments of the premium tax credit or claim the premium tax credit, and to file a complete and accurate tax return.
  • Form 1095-B is mailed to taxpayers by the insurer to verify the minimum qualifying health insurance coverage when insurance is acquired by the taxpayer outside of the Exchange and not provided through an employer. It has information about who was covered and for what period.
  • 1095-C is issued to employees when health care coverage is made available to them by an employer. An employer must be large enough to have 50 full time employees at a minimum.
  • The 1094 (Transmittal of Health Coverage Information) form is used by employers to report minimum essential coverage to the IRS during a calendar year.

Flexible Savings Accounts and Health Savings Accounts

Individuals who have started Flexible Savings Accounts (FSAs) or Health Savings Accounts (HSAs) may now be faced with contribution caps and deduction limits. The ACA has also mandated that over the counter medicines will no longer qualify as medical expenses for FSAs or HSAs. Additionally, HSAs incur 10 to 20% penalties if a person spends money on a non-qualified medical expense.

While these changes are certainly noteworthy, the introduction of both the Individual Shared Responsibility Provision and premium tax credit will likely have the most bearing on the average American's taxes.

For more information on how medical deductions may impact your taxes, see our Deductions for Medical Expenses article.

Q&A: Am I eligible for the ACA Premium Tax Credit?

The ACA Premium Tax Credit is a refundable tax credit available to help offset the cost of ACA health insurance. The credit is designed to lower the impact of out-of-pocket health insurance premiums. Eligibility depends on the taxpayer's income and household size.

Taxpayers can receive this credit in direct payments to their insurance provider or as part of their tax refund. To qualify, your household income must be at least 100 percent and, for years other than 2021 and 2022, no more than 400 percent of the federal poverty line for your family size.

After completing an application on HealthCare.gov, taxpayers have the option to use the credit to reduce some or all of their premiums each month. If they decide to use reduce their premiums and their credit winds up being less than estimated, the overage may be reimbursed using the proceeds of the taxpayer's tax refund.

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