Tax Facts about the Affordable Care Act for Individuals and Families
Details on Key Provisions Affecting Individuals
FS-2014-09, November 2014
The most important ACA tax provision for individuals and families is the premium tax credit, which took effect on January 1, 2014. Individuals without coverage and those who don’t maintain coverage throughout the year must have an exemption or make an individual shared responsibility payment. These provisions will affect federal individual income tax returns filed in 2015.
Here are a few basic tips to keep in mind.
- The IRS is conducting an information campaign to educate taxpayers about some of the basics of the ACA. This campaign will include health care tax tips, YouTube videos and expanded ACA web pages on IRS.gov.
- Whether individuals received advance payments of the premium tax credit or are claiming an exemption from the individual shared responsibility provision, they should consider e-filing their tax return. Using tax preparation software is the best way to file a complete and accurate tax return as it guides individuals and tax preparers through the process and does all the math.
- Most people already have qualifying health care coverage. The IRS expects the vast majority of taxpayers – well over 100 million tax filers – will only need to check a box to indicate that they satisfy the individual shared responsibility provision when they file their tax returns in early 2015.
- Individuals who don’t maintain coverage throughout the year must have an exemption or make an individual shared responsibility payment with their federal income tax returns.
- Individuals and families who get coverage through the Health Insurance Marketplace may be eligible for the premium tax credit. Eligible individuals and families can choose to have advance credit payments paid directly to their insurance company to lower what they pay out-of-pocket for their monthly premiums.
- Individuals claiming the premium tax credit, including those who received advance payments of the premium tax credit, must file a federal income tax return for the year and attach Form 8962, Premium Tax Credit (PTC).
- If the individual received advance credit payments, he or she will reconcile those payments with the amount of the premium tax credit actually allowed on the federal income tax return.
- For more information about the premium tax credit or the individual shared responsibility payment, visit IRS.gov/aca. For more information about the Marketplace, visit HealthCare.gov.
Premium Tax Credit
- Individuals and families who get coverage through the Health Insurance Marketplace may be eligible for the premium tax credit.
- In general, an individual who purchases coverage through the Marketplace may be eligible for the premium tax credit if they:
- Are not eligible for other qualifying coverage, such as government-sponsored coverage or certain employer-sponsored coverage
- Are within certain income limits
- Do not file a Married Filing Separately tax return unless they meet certain criteria
- Cannot be claimed as a dependent by another person
- Individuals and families can have advance credit payments paid directly to the insurance company to lower their premium cost, or they can wait to claim the credit when they file their federal income tax return. Visit IRS.gov/aca to find out more about the get it now or get it later option.
- Anyone receiving advance credit payments should report changes in circumstances – such as getting married or getting a new job – to the Marketplace. Reporting changes will help make sure taxpayers get the proper type and amount of financial assistance and will help them avoid getting too much or too little in advance.
- If an individual receives advance credit payments in any amount or if they plan to claim the premium tax credit, they must file a federal income tax return for the year. If the individual received advance credit payments, he or she will reconcile those payments with the amount of the premium tax credit actually allowed on the federal income tax return.
- If the premium tax credit computed on the federal income tax return is more than the advance payments, the additional amount of the credit will increase the refund or lower the amount of tax owed.
- If the credit on the tax return is less than the amount received in advance, individuals will have to repay excess advance payments and that will increase the amount owed or result in either a smaller refund or a balance due.
- Early in 2015, individuals who bought health insurance through the Marketplace will receive Form 1095-A, Health Insurance Marketplace Statement, which includes information about their coverage and any premium assistance received. Form 1095-A will help individuals complete their tax return.
- Individuals claiming the premium tax credit, including those who received advance payments of the premium tax credit, will attach Form 8962, Premium Tax Credit (PTC) to their federal income tax return.
Individual Shared Responsibility Provision
- Most people already have qualifying health care coverage and therefore don’t need to do anything more than continue their insurance coverage throughout the year.
- Individuals who maintain coverage throughout the year will report their coverage on their federal income tax return by simply checking a box.
- Individuals who don’t have qualifying coverage or who don’t have an exemption may have to make an individual shared responsibility payment when they file their federal income tax return.
- Qualifying coverage includes most employer-sponsored coverage, coverage obtained through a Health Insurance Marketplace, coverage through most government-sponsored programs, as well as certain other plans.
- For 2014, the payment amount is the greater of 1 percent of the household income above the taxpayer’s filing threshold, or $95 per adult plus $47.50 per child (limited to a family maximum of $285). This payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace.
- If for any month an individual or a member of their tax household did not have health care coverage or an exemption, the Form 8965 instructions provide the information needed to calculate the payment that will be reported on the federal income tax return.
- Those who go without coverage or experience a gap in coverage may qualify for a coverage exemption if one of the following applies:
- They do not have access to affordable coverage
- They have a gap of less than three consecutive months without coverage
- They qualify for one of several other exemptions, including a hardship exemption
- How individuals get an exemption depends upon the type of exemption. They can obtain some exemptions only from the Marketplace in the area where they live, others only from the IRS when they file their income tax return, and others from either the Marketplace or the IRS. For more information, visit IRS.gov/aca.
- Individuals will use Form 8965, Health Coverage Exemptions to report a coverage exemption granted by the Marketplace – also called the Exchange – or to claim a coverage exemption on their tax return.
More information about these tax provisions can be found at IRS.gov/aca