Over the past several months and years we have heard a lot about “health care mandates” and the Affordable Care Act (ACA).   The ACA actually refers to two separate pieces of legislation, “The Patient Protection and Affordable Care Act” and “The Health Care and Education Reconciliation Act” that congress first passed into law in 2010.

The ACA aims to provide expanded health coverage, insurance company accountability, lower health care costs, more choices and enhanced quality. The requirement to obtain health insurance applies to each and every man, woman and child. So how will the taxpayers pay for these mandates? For starters, on your 2014 personal income tax return (due April 15, 2015) there will be several reporting requirements and taxes imposed for non-compliance. The 2014 tax forms will have a few new lines added and there will be two new forms to file. There are also employer mandates that became effective in 2015. All employers with at least 100 or more full time or full time equivalent employees must offer them (and their dependents) minimum health care coverage. If the employer fails to offer coverage and at least one employee qualifies for the premium tax credit or subsidy, the employer may be subject to an employer shared responsibility payment. The employer responsibility provisions will not apply to smaller employers (those employers with at least 50, but fewer than 100 full-time employees) until 2016. Employers with less than 50 employees are not subject to the “employer responsibility provision” for 2015 or 2016 and beyond. Employers falling under the “large employer” mandates will be required to file forms 1094-C (transmittal) and 1095-C (employee statement) with the IRS and will be due no later than February 29, 2016. The IRS will use the information provided on the information return to administer the employer shared responsibility provisions of section 4980H.

Employer Shared Responsibility Penalties

The first penalty under Internal Revenue Code (Code) Section 4980H (a) is the penalty for failure to offer health coverage.  Effective for plan years beginning on or after January 1, 2015, a $2,000 annual penalty applies to a large employer that fails to offer at least 70% (95% in 2016) of its full-time employees (FTEs) and their dependents health coverage.  The $2,000 penalty is assessed on a monthly basis, but applies to all of an employer’s FTEs, minus 30 FTEs.

The second penalty under §4980H (b) is for the failure to offer coverage that is of minimum value and affordable.  The Section 4980H(b) penalty is a $3,000 annual penalty assessed on a monthly basis, and applies to each FTE who isn’t offered minimum value affordable coverage by the large employer, goes to the Marketplace Exchange and receives an exchange subsidy for insurance he or she purchases through the Marketplace Exchange.  It is important to note that even if an employer offers coverage to 70%  of its FTEs for 2015 (95% for 2016), the employer could still be subject to penalties under Section 4980H(b) if the coverage is unaffordable or does not provide minimum value.  Also, even if an employer meets the 70/95 percent threshold, it still faces the potential for the $3,000 Section 4980H (b) penalty for every FTE who isn’t offered coverage if that employee receives an exchange subsidy for insurance purchased through the Marketplace Exchange.

Individual Shared Responsibility Penalty

The ACA also imposes a penalty on certain individuals who fail to obtain minimum essential coverage (MEC).  Beginning in 2014 if a taxpayer (or an individual for whom the taxpayer is liable) isn’t covered under MEC for one or more months, then, unless an exemption applies, the taxpayer is liable for the individual shared responsibility payment on his or her individual tax return.  Health plan coverage provided through an insured or self-insured employer group health plan is deemed to be MEC. The new forms required by the ACA to be attached to your 1040 include 8962-Premium tax credit and 8965-Health coverage exemption.  Additionally, if you have health insurance coverage purchased through the marketplace you will receive form 1095-A which provides information you will need in order to complete form 8962. 

Form 8962 (Premium Tax Credit) - If the taxpayer purchased health insurance through one of the exchanges (also known as the marketplace), Form 8962 must be filed. When the taxpayers obtained their health insurance policy via the exchange, they submitted estimates of their 2014 income, which was used by the exchange to determine their premium and subsidy for their premium via “advanced credits”. The purpose of Form 8962 is to reconcile the correct amount of premium tax credit the taxpayer is entitled to based on their actual income reported on Form 1040 for 2014. Therefore you will file Form 8962 with your income tax return (Form 1040, Form 1040A, or Form 1040NR) if any of the following apply to you:

•   You are taking the Premium Tax Credit.

•   Advanced Premium Tax Credit (APTC) was paid for you or another individual in your tax family.

•   APTC was paid for an individual for whom you told the Marketplace you would claim a personal exemption, if no one else claims a personal exemption for that individual.

Filing Form 8962, will guide you in determining one of the following:

1)   You owe additional tax because the advanced credits received by you (the taxpayer) will have been greater than the allowable premium tax credit.

2)   You will have a refundable tax credit because the advanced credits you receive were in fact less than the allowable premium tax credit; or

3)   You will have neither because perhaps a premium tax credit was not received and nothing is due, or, the advanced premium credit allowed matches up with the allowable premium tax credit.

Form 8965 (Health Coverage Exemptions) - Complete this form to report an exemption from health coverage for yourself or another member of your tax household. An individual may qualify for an exemption if, household income is below the return filing threshold, the individual went without coverage for less than three consecutive months during the year, or the individual was a member of a health care sharing ministry. An individual may also seek an exemption based on hardship.

Form 8965 worksheet is required in order to report your “Shared responsibility Payment.” For 2014, the payment is either $95 per adult and $47.50 per child (up to $285 for a family) or 1% of household income that is above the tax return filing threshold, whichever is higher. For 2015, it’s either $325 per adult and $162.50 per child (up to $975 for a family) or 2% of household income. For 2016, it’s either $695 per adult and $347.50 per child (up to $2,085 for a family) or 2.5% of household income.

The ACA hasn't been on people’s minds recently and that's because up until the 2015 filing season, the impacts were relatively small for most taxpayers and employers. But, that's not the case anymore, new requirements and taxes on Form 1040 and brand new tax forms (Form 8962, 8965 and 1095-A) plus employer mandates and filing requirements are some of the items that have received people’s attention for the 2015 filing season and beyond. The tax professionals at Dermody, Burke and Brown, CPAs are ready to assist you in navigating through these complex regulations.   

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.