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Obamacare Mandates and the 2015 Tax Season

If you have health insurance under Obamacare:
Obamacare – or, more officially, the Affordable Care Act (ACA) – insurance mandate, along with its health insurance premium subsidies available from insurance marketplaces, premium tax credit (PTC), and penalty for not being insured, is going to affect just about every taxpayer in one way or another.

It is important for everyone to understand that new, substantial, and sometimes complicated reporting requirements have been added to the 2014 tax return to facilitate the ACA insurance mandate. As a result, taxpayers need to be prepared for a variety of new forms they will be receiving starting in January 2015 from their insurance companies, employers, and the marketplace that they will need in order to prepare their tax returns. 

These forms, which are also filed with the government, will:
• Provide proof of ACA acceptable monthly insurance coverage for all family members that you will use on your 2014 tax return to avoid being assessed a penalty for not being insured.

• Provide the government, and you, with the amount of monthly advance premium tax credit (APTC) – sometimes referred to as a premium subsidy – you may have benefited from if you purchased health insurance from a government-run insurance marketplace (also known as an exchange). These amounts are needed to determine if you are entitled to an additional PTC or if you must repay some portion of the APTC. The insurance marketplaces will provide this information on a Form 1095-A. Private insurance companies will provide proof of coverage on Form 1095-B.

Things can get pretty complicated if your tax family or household income changed during the year and you did not report the change to the marketplace. When a taxpayer was married or divorced during the year or an individual who is not in your tax family was included in insurance purchased through the marketplace, the insurance premiums and APTC must be allocated among those insured by the month. 

To make matters worse, the IRS is letting both employers and insurance companies use alternative means of providing the required information for 2014, which means you will need to watch out for substitute reporting not included on the official IRS forms.

All of this additional reporting and allocating, if necessary, greatly adds to the complexity of 2014 tax returns, especially for taxpayers who qualify for the PTC and those who’ve received APTC through the marketplace.

For help calculating your premium tax credit, please give us a call.

If you do not have health insurance:
If you didn’t get health insurance coverage this year, you may be subject to a penalty unless you qualify for one of the many general or hardship exemptions. There are in excess of 30 possible exemptions from the penalty and some of the exemptions require you to complete and file an application for approval. If approved for an exemption that requires specific approval, you will be issued an exemption certificate number (ECN) that must be included on your tax return to claim the exemption.

The approval form instructions cover several types of exemptions, will take some time to complete; and, once the application is submitted, the approval/denial process presently takes more than two weeks. Once others realize they need approval for certain hardship exemptions, however, you can expect the approval process to take considerably longer. While application forms are available online, each application must be printed, filled out manually, and then snail-mailed to the government for processing. With tax season just around the corner, you don’t want your refund held up while you are applying for an exemption; so, start the process early.

Not all exemptions require approval, so make sure your reason for an exemption requires advance approval before going to the trouble of completing and submitting the form. If you qualify for an exemption that doesn’t require prior approval, you can claim it on a new IRS form that will need to be included with your 2014 tax return.

If you didn’t have insurance for some period of time during the year (the penalty is computed by the month) and you don’t qualify for one or more of the exemptions, then you will be subject to the penalty for not being insured (the official name for the penalty is the “shared responsibility payment”).

The penalty is generally the larger of a flat dollar amount per individual or a percentage of your income, whichever is greater. For 2014, the full-year penalty, based upon the flat dollar amount, is $95 per adult and $47.50 per child, capped at $285 regardless of family size. The full-year penalty determined by income is 1% of the amount that your household income exceeds your tax filing income threshold.

Example: For 2014, Kevin and Brett are married filing jointly with two minor children. Their household income is $55,000 and their filing threshold is $20,300 (their standard deduction of $12,400 plus the exemption amount of $3,950 each for both of them). So, their flat dollar amount for a full year would be $285, and their percentage of income amount would be $347.00 (($55,000 - $20,300) x 1%). Thus their penalty would be $347.00 for a full year without insurance or $28.92 per month for the family.

For the first year of the shared responsibility payment, 2014, the penalties are low. In 2015, the flat dollar amounts jump to $325 per adult and $162.50 per child (capped at $975), while the percentage of income jumps to 2%. Then, in 2016, the per-adult flat dollar amount goes to $695 and the child amount to $347.50 (maximum $2,085), while the percentage of income increases to 2.5%. If our prior example had taken place in 2016, Kevin’s and Brett’s penalty would be $2,085 (2 x $695 plus 2 x $347.50) since the flat dollar amount is larger than their percentage of income amount.

Kevin and Brett, based upon their income, would qualify for some amount of premium assistance credit that will help them pay the cost of their health insurance if they purchase coverage through a government marketplace. With the severe increase in penalties over the next two years, Kevin and Brett will need to consider whether the cost of health insurance (and the benefits that come with coverage) is a better option than paying the penalty. Open enrollment for 2015 marketplace insurance begins November 15, 2014.

If you need assistance with exemptions or have questions about your penalty, give us a call.

For businesses with more than 50 employees:
In general, beginning January 1, 2015, employers with at least 100 full-time and full-time-equivalent employees must offer affordable health coverage that provides minimum value to at least 95% of their full-time employees and their dependents or they may be subject to an employer shared responsibility payment. This payment applies only if at least one of the employer’s full-time employees qualifies for a premium tax credit through enrollment in a government Health Insurance Marketplace.

Generally, an employer is subject to the requirement to provide affordable health coverage in 2015 if the employer has 100 or more full-time employees. When determining the number of full-time employees, there are certain classes of employees that are excluded from the count—the most notable being certain seasonal employees. Although an employee is considered full-time if he or she works 30 or more hours per week, to determine if the employer has reached the 100 full-time employee threshold, part-time employee hours for a month are totaled and divided by 120, and the result is added to the full-time count. Thus, an employer with fewer than 100 full-time employees may be required to provide an insurance plan to the employer’s full-time employees if the combination of full-time employees and the hours of part-time employees equal the equivalent of 100 full-time employees.

Each year, employers will determine, based on their current number of employees, whether they will be considered an applicable large employer for the next year. For example, if an employer has at least 100 full-time employees (including full-time equivalents) for 2014, it will be considered an applicable large employer for 2015. Employers average their number of employees across the months of the year to see whether they will be an applicable large employer for the next year. This averaging can take into account fluctuations that many employers may experience in their work force across the year.

Even though an employer determines whether it is subject to the mandate based upon the number of employees during the prior year, the penalty is based upon the current year’s employees and is determined on a monthly basis.

Example: John has 90 full-time employees, plus he has 40 part-time employees. His part-time employees for the month of January worked 1,920 hours. That is the equivalent of 16 (1,920 / 120) full-time employees. Thus, the number of John’s full-time employees for the month of January is 106 (90 + 16). As a result, John will have to provide his 90 full-time employees and their dependents with affordable health coverage for January or be subject to the shared responsibility payment (penalty) for that month, but only if at least one full-time employee receives a premium tax credit. The penalty is determined on a monthly basis.

Affordable health care coverage is minimum essential coverage where the employee’s share of the cost is no more than 9.5% of the employee’s household income.

Employers with 50 or more full-time employees are also subject to the shared responsibility payment (penalty), but not until 2016, and again only if one or more full-time employees claim a premium tax credit.

If your business offers coverage to fewer than 95% of full-time employees, you could owe a tax equal to the number of full-time employees (minus up to 80 for 2015, 30 for 2016) multiplied by $2,000. If your business offers coverage to at least 95% of employees, the penalty is computed on a monthly basis. The amount of the payment for the month equals the number of full-time employees who receive PTC for that month multiplied by 1/12 of $3,000 ($250 per month per employee).

The foregoing is an abbreviated overview of the employer insurance mandate. The rules are complex. If you are unsure whether or not your business is subject to the penalty for 2015, please give this office a call. Don’t delay: the penalties are substantial and in some cases may be higher than the cost of the insurance.

The content of this transmission does not constitute a professional service nor does it constitute a tax opinion under IRS Circular 230. Always consult with a competent professional service provider for advice on tax, accounting, and other financial matters specific to your situation. If you wish to engage our firm for this purpose, please contact our office.

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