Obamacare and Taxes: What You Need to Know Before You File
Do you have to worry about IRS Forms 1095, 8965, or 8962? The Affordable Care Act, aka Obamacare, requires you to do one of the following three things when you file their taxes this year:
- confirm they had health insurance coverage for 2016
- claim an exemption from health coverage, or
- pay a penalty when they file their return.
This remains true even though the Trump administration has issued an executive order allowing the IRS to accept tax without health insurance disclosures. Under the Affordable Care Act, you are still required to pay any Obamacare tax penalty you owe, and the IRS may question you if you fail to report your health insurance status on your tax return. The new rule does, however, imply that the Trump administration may not aggressively pursue people who don't pay their penalties.
Here’s what you should know about filing your taxes in this confusing era of health insurance reform.
The Affordable Care Act Doesn't Complicate Most People’s Taxes
You don't have to fill out new tax forms if you are covered by qualifying health insurance that you obtained:
- through your employer
- outside a state or federal health insurance marketplace
- through a state or federal health insurance marketplace if you did not and will not claim a tax credit (subsidies), or
- from a government health plan such as Medicare, Medicaid, or CHIP.
If one of the above conditions applies to you, all you have to do is check the “full year coverage” box on your regular tax return to report that you were covered by qualifying health insurance for 2016.
People Who Were Exempt From Health Insurance Coverage Requirements Must Complete IRS Form 8965
Those who qualify for a valid exemption for coverage under the Affordable Care Act must fill out IRS Form 8965, called “Health Coverage Exemptions.” You must attach this form to your tax return.
You may qualify for an exemption if:
- You live in a state that didn't expand Medicaid and you fell into the Medicaid coverage gap, meaning you made too much money to qualify for Medicaid but not enough to qualify for subsidized insurance.
- You are uninsured for fewer than three months of the year.
- You prove that you can’t afford coverage -- that is, premiums for a "bronze" policy cost more than 8% of your earnings.
- You don’t have to file a federal income tax return because your income is too low.
- You are a member of a federally recognized Indian tribe.
- You are a member of a health care sharing ministry.
- You are a member of a recognized religion that objects to health insurance.
- You are in the United States illegally.
- You are incarcerated.
- You can prove that obtaining health insurance would subject you to serious financial hardship.
You can learn more about exemptions and Form 8965 by visiting the IRS website page on claiming and reporting exemptions.
Everyone Who Bought a Marketplace Health Plan Should Receive IRS Form 1095-A
Form 1095-A is called a “Health Insurance Marketplace Statement,” and it provides information about your health care coverage, including:
- the total monthly health insurance premiums you paid to your marketplace insurer in 2016, and
- the amount of financial assistance you received in the form of advance payments of the federal tax credit that were paid directly to your insurance company.
Form 1095-A will help you complete your 2016 tax return. If you don't receive a copy of Form 1095-A and you think you should have, contact your state's health insurance marketplace to get the information you need. You may be able to get the required information directly from your online account, even if you didn’t get a physical copy of your 1095-A form.
For your marketplace contact information, see How to Get Help From Pennsylvania’s Health Insurance Exchange.
People Who Purchased a Subsidized Health Plan Through a Health Insurance Marketplace Must Complete IRS Form 8962
If your 2016 health insurance premiums were lowered by subsidies, those subsidies were actually an advance on a tax credit. You must now claim that credit on your tax return by providing detailed information about your insurance plan and your actual income. To do this, you’ll complete IRS Form 8962, called “Premium Tax Credit (PTC).”
If you underestimated your income when you chose your health plan, you may have to pay back some of the subsidies you received. But if your income was lower than you thought it would be, you may get a bigger refund.
If You Qualified for Tax-Credit Subsidies, It May Not Be Too Late to Claim Them
Some people bought marketplace health insurance plans but chose not to take advance tax-credit payments in 2016. If you qualify for 2016 tax credits based on your income, you can collect them when you file your tax return. You can use IRS Form 8962 for this purpose.
If You Must Complete IRS Form 8962, You’ll Probably Want Help
By all accounts, form 8962 isn’t easy to understand. Your best option is to use reputable tax preparation software that asks you questions and fills in the correct answers on your form -- or seek help from a qualified tax professional.
If you try to contact the IRS directly, keep your expectations low. Budget cuts have forced the IRS to reduce taxpayer services, meaning you may not get through when you call, or you may have to endure long hold times. When you do reach someone, chances are they won’t be able to answer nuanced questions about health insurance and your taxes.
One piece of good news is that the IRS offers a “Free File” program for taxpayers whose adjusted gross income is less than $64,000. The program allows you to get tax-preparation software free of charge.
If you don’t want to use software, the IRS offers a searchable database of credentialed tax preparers to help you find a professional in your area.
You may also want to use this checklist offered by HealthCare.gov to help you prepare to complete your taxes.
Those Who Didn’t Have Qualifying Health Coverage (or an Exemption) for 2016 Must Pay the Penalty
For each month in 2016 that anyone on your return didn’t have qualifying health coverage and didn’t qualify for an exemption, you may need to pay a penalty when you file your return. This payment is called the “individual shared responsibility provision.”
You can learn more about how to calculate and report the payment by visiting the IRS website’s page on the tax penalty.
You may also be interested in:
How the Obamacare (Affordable Care Act) tax penalty works, and how much you may have to pay if you don't have health insurance in 2014.
Five things Pennsylvania residents need to know about the Affordable Care Act (ACA or Obamacare), including whether you must get health insurance, how much it will cost, and how you can save money.
Know which services -- including a colonoscopy, mammogram, vaccinations, and many more -- you can get for free under Obamacare (the Affordable Care Act).