It’s officially tax season, so this is a great time to review the ways your health insurance—or lack of health insurance—could impact your tax return.
First, let me caution that I’m not a tax expert and this article isn’t meant to provide tax advice. You should always consult with a tax advisor if you have questions about your own personal situation. With the ACA comes additional reporting and lots of new forms. My hope is that this article will help clear up some of the confusion as you begin sorting through the stack of items you’re likely receiving from your employer, your insurer, and even the federal government.
Below are the top 5 ways health insurance could impact your taxes…
#1 If you have health insurance…
Be on the lookout for all sorts of new forms in the mail:
- 1095-A, Marketplace Statement – You’ll receive this form if you purchased health insurance through the federal or state Marketplace and will need it to claim a premium tax credit (or subsidy) or reconcile any advance premium tax credit you received.
- 1095-B, Health Coverage – You’ll receive this form from your health insurance company if you have a plan purchased in the individual market or a fully-insured plan offered through your employer. If your company has fewer than 50 employees and is self-insured, you’ll receive this form from your employer. It will show you which months of the year you and your family members had “minimum essential coverage” and therefore satisfied the Affordable Care Act’s individual shared responsibility requirement.
- 1095-C, Employer-Provided Health Insurance Offer and Coverage – In general, you’ll receive this form from your employer if the company has 50 or more employees and you were a full-time employee (working 30+ hours per week) for one or more months during the year. If the company is also self-insured, then section 3 of this form will be completed and you won’t receive a Form 1095-B. This form is used by the IRS to determine if you were offered qualified, affordable coverage through your employer, which would make you and your family members ineligible for a premium tax credit in the individual market.
#2 If you have an HSA…
You’ll need to complete IRS Form 8889. This is a relatively simple form designed to determine whether…
- you can take a deduction on your taxes for contributions you made to your Health Savings Account
- you have to report any portion of your HSA withdrawals as taxable income
- you owe any penalties for excess contributions, failure to satisfy a testing period, or withdrawing funds for ineligible expenses
To help complete form 8889, you should receive a Form 1099-SA from your HSA administrator. This form shows all HSA spending during the year.
#3 If you received or want to claim a premium tax credit…
You’ll need to complete IRS Form 8962, Premium Tax Credit. This new IRS form, introduced last year at this time, is used by individuals and families with incomes below 400% of the federal poverty level who purchased health coverage through the federal or state marketplace and want to claim a premium tax credit on their taxes.
The form is also used by taxpayers who received an advance premium tax credit through the Marketplace to reconcile the amount they received with the amount they should have received based on their actual income. If you received a premium tax credit and your 2015 year-end income was lower than anticipated, you’ll receive a larger income. However, if you ended up making more than you expected, you’ll receive a smaller income or may owe some money back to the government.
#4 If you were uninsured for one or more months
You can apply for an exemption from the individual mandate by completing Form 8965, Health Coverage Exemptions. If they apply to you, there are several different exemptions you can request, including:
- Income below the filing threshold
- Coverage considered unaffordable
- Short coverage gap
- Members of a health care sharing ministry
- Members of Indian tribes
- Members of certain religious sects
- General hardship
- And more…
#5 If you owe an individual mandate penalty…
You’ll need to calculate how much you owe and report it on your tax return. Basically, you’ll owe a penalty for any month you or your family members were uninsured and didn’t qualify for an exemption.
The penalty for 2015 is the greater of $325 per adult and $162.50 per child with a cap of $975 per family OR 2% of the applicable household income and is based on the number of months you went without health coverage. To help with calculations, there’s a worksheet in the instruction booklet for Form 8965.