What Happens at Tax Time? Tax Penalties and Premium Tax Credit Reconciliation. Tricia Brooks OACHC Training March 11, 2015

Transcription

1 What Happens at Tax Time? Tax Penalties and Premium Tax Credit Reconciliation Tricia Brooks OACHC Training March 11, 2015

2 What happens at tax time? Uninsured individuals will pay a tax penalty, unless exempt Individuals will reconcile APTC with final PTC Individuals enrolled in the Marketplace not using APTC can claim a tax credit 2

3 Warning! This training is intended to remind assisters of the rules regarding tax penalties and reconciliation of premium tax credits, and to give you a glimpse of what consumers are dealing with now that s tax time. Assisters are not required or expected to assist individuals with tax preparation. 3

4 Where Can Consumers Get Tax Help? Free Tax Help Volunteer Income Tax Assistance (VITA) Tax filers with income <$52,000 Persons with disabilities Elderly Limited English proficiency Tax Counseling for the Elderly (TCE) > 60 years Tax preparation software Tax preparers 4

5 IRS Taxpayer Assistance Services IRS Hotline IRS Guide to Free Tax Services - Tax Assistance Walk-In Sites - Low income Taxpayer Clinics - Clinics/Low-Income-Taxpayer-Clinics Taxpayer Advocate (problems) - 5

6 3 New Tax Forms Form 8965 Filed with taxes Reports exemption granted by the marketplace Used to claim an exemption that can be claimed at tax filing Calculates individual share responsibility payment for those who were uninsured Form 1095-A Marketplace sends to QHP enrollees Includes monthly details of: - Enrollment - Full cost of plan selected - Cost of benchmark plan - Amount of PTC taken in advance Form 8962 Used to transfer information from 1095-A Calculates final PTC based on actual income Determines if excess PTC was taken or if additional tax credit is due 6

7 1 Penalty is the greater of Tax Penalty for No Health Insurance Adult = $95 Child = $47.50 Family = $285 Adult = $325 Child = $ Family = $975 Adult = $695 Child = $ Family = $2,085 OR OR OR 1% of taxable income above filing threshold 2% of taxable income above filing threshold 2.5% of taxable income above filing threshold Future Years Annual Cost-of Living Increases Penalty is capped at national average cost of bronze plan Individual = $2,448 Family = $12,240??? 7

8 1 Minimum Tax Filing Threshold Tax Filing Status Tax Filing Threshold (2014) Tax Filing Threshold (2015) Single $10,150 $10,300 Head of Household $13,050 $13,250 Married, Filing Jointly $20,300 $20,600 Dependent Qualifying Widow/er with Dependent Child $6,200 or ($1,000 unearned) $6,300 or ($1,050 unearned) $16,350 $16,600 Not based on whether you file or not, the requirement is based on having income above tax filing threshold. It does not apply to individuals with lower income who file taxes to get refund or get their earned income tax credit (EITC). 8

9 Exemptions from Individual Mandate Not required to file tax return Uninsured less than 3 months Lowest cost plan > 8% of household income Member of federally recognized tribe or eligible for Indian Health services Member of recognized health care sharing ministry Member of recognized religious sect Incarcerated Not lawfully present Meet hardship requirements 9

10 Life Circumstances = Hardship Exemption Homeless Eviction in past 6 months or facing eviction/foreclosure Shut-off utility notice Domestic violence Death of close family member Fire, flood or other disaster Filed bankruptcy in past 6 mos. Outstanding medical expenses (24 months) State didn t expand Medicaid Increase in expenses to care for ill, disabled or aging family member You claim a child denied Medicaid/CHIP and another person is court ordered to provide health coverage Approved to enroll in QHP under appeal but were uncovered for some months Individual coverage cancelled and QHPs are not affordable Other hardship getting covered 10

11 Who Grants the Exemption? Granted by Marketplace Hardship Exemptions - Life circumstances - Insurance >8% of projected income - Eligible for Indian Health Services - Plan cancellation Member of certain religious sects AmeriCorps coverage Granted at Tax Filing Income below filing threshold Insurance is unaffordable (>8% of actual income) Certain noncitizens One gap in coverage < 3 months Gap before May 1, 2014 effective date for coverage Granted by Marketplace or at Tax Filing Indian Tribe membership Incarceration Health care sharing ministry State didn t expand Medicaid For a complete list of exemptions and how/when they are granted, see page 2: 11

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13 Marketplace Exemption Process Apply using proper paper form (by mail only currently) Marketplace reviews and may request additional information. Time depends on reason. Marketplace grants exemption, sends notice and provides exemption certificate number. 13

14 Is documentation required? Must provide income documentation when applying for affordability exemption Must provide cancellation notice when losing coverage if you want to purchase catastrophic coverage Other exemptions may require documentation, see instructions for details Marketplace may request additional information 14

15 Key Points about Most Hardship Exemptions Should apply timely and provide supporting documentation But can apply up to 3 years after month of hardship (will have to document so earlier is better) Consumer is eligible to purchase catastrophic plan If exempted based on hardship or affordability, and During open enrollment or exemption qualifies for SEP Most cases, must report changes Change in circumstance may qualify for SEP Duration at least one month before through one month after Other rules for affordability hardship 15

16 Affordability Exemption Based on MAGI Income If eligible for employer coverage Employee lowest cost selfonly plan = >8% of income Employee s spouse and dependents lowest cost family plan = >8% of income 8% cost of ESI without wellness discounts Not eligible for ESI Lowest cost bronze plan after PTCs for all non-exempt family members = >8% income Duration and Timing If granted by Marketplace, Based on projected income Applies only to future months in the year Apply during open enrollment or special enrollment period. To get full year exemption, apply before the year starts If granted by IRS Based on actual income Additional exemption for spouses offered ESI but combined cost >8% income 16

17 Affordability Example: The Garcia Family Maria and Lucas Garcia are married and have two children. Both work but only Lucas is offered health coverage. No one in the family is not enrolled. Household income: $47,100/197% FPL Premium Cost for Lucas - $2,000/4.2% Premium Cost for family - $9,000/19.1% Is Lucas eligible for an affordability exemption? Are Maria and the children eligible for an affordability exemption? Bonus question: Is the family eligible for premium tax credits? (Hint remember the family glitch?) 17

18 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 4.2% Lucas only Example: Garcia Family 19.10% Family 9.5% 8.0% The family is NOT eligible for PTCs because coverage for Lucas is <9.5% of income. Lucas is NOT eligible for an exemption; his coverage is <8% of income. Maria and the children are eligible for an exemption; coverage for the family is >8% of income. The FFM does not consider eligibility for CHIP/Medicaid in granting exemptions. For 2015 coverage year, 9.56% and 8.05% apply 18

19 Example: Aggregate Cost of Coverage Sylvia and John both have jobs that offer health coverage: Household income: $45,000 Premium Cost for Sylvia - $2,400/5.3% Premium Cost for John - $2,100/4.6% Aggregate cost: $4,500/10% Are Sylvia and John eligible for PTCs? Are Sylvia and John eligible for an exemption? 19

20 Example: Sylvia and John 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 10% 5.3% 4.6% Sylvia John Aggregate 9.5% 8% Neither Sylvia or John are eligible for premium tax credits; individual coverage for each of them is less than 9.5% of household income. Sylvia and John do qualify for an exemption when filing their taxes because their combined cost of purchasing employer coverage is more than 10% of household income. 20

21 SEP for Individuals Paying Tax Penalty March 15 April 30, 2015 Not currently enrolled in QHP for 2015 Attest that they paid a penalty Attest that they became aware of shared responsibility payment when they prepared their 2014 taxes 21

22 Reporting or Declaring an Exemption at Tax Time (Form 8965) Form 8965 is used to: 1) Report the exemption certificate number for members of household granted by the marketplace 2) Claim an exemption that can be granted at tax time. 3) Determine tax penalty for going with coverage 22

23 2 Tax Reconciliation of APTCs Final premium tax credit is calculated based on actual taxable income plus non-taxable Social Security benefits Subtract amount of PTC taken as advanced payments If final PTC is greater than APTC = refund If APTC is greater than final PTC = owe taxes 23

24 PTC Reconciliation: The Bennett s Cindy and Mark Bennett have a small business. When they applied for Marketplace coverage they projected household income of $47,700 (200% FPL). But when they filed their taxes, their income was slightly lower: $46,507 (195% FPL). 24

25 Bennett s PTC Reconciliation At Application $12,000 Cost of Second Lowest Silver Plan (benchmark) $ 3,005 Projected Annual Income x Expected Premium Contribution ($47,700 = 200% FPL, family of 4, x 6.3%) $ 8,995 Available as an advanced payment of premium tax credit At Tax Time $12,000 Cost of Second Lowest Silver Plan (benchmark) $ 2,823 Actual Annual Income x Expected Premium Contribution ($46,507 = 195% FPL, family of 4, x 6.07%) $ 9,177 Final premium tax credit $ 182 Additional tax credit refund (or offset other taxes owed) 25

26 PTC Reconciliation: Bob and Liz Bob and Liz both work but neither is offered affordable employer coverage. When they applied for Marketplace coverage they reported household income of $31,460 (200% FPL). In December, Bob got an unexpected bonus of $2,000. So their total income at tax time was $33,460 (213% FPL). 26

27 Bob and Liz s PTC Reconciliation At Application $ 8,000 Cost of Second Lowest Silver Plan (benchmark) $ 1,982 Projected Annual Income x Expected Premium Contribution ($31,000 = 200% FPL, family of 2, x 6.3%) $ 6,018 Available as an advanced payment of premium tax credit At Tax Time $ 8,000 Cost of Second Lowest Silver Plan (benchmark) $ 2,298 Actual Annual Income x Expected Premium Contribution ($33,000 = 213% FPL, family of 2, x 6.87%) $ 5,701 Final premium tax credit $ 317 Repayment of Excess Premium Tax Credit 27

28 2 Repayment of Excess PTCs is Capped Household Income (FPL) Individual Family < 200% FPL $300 $ % 300% FPL $750 $1, % 400% FPL $1,250 $2,500 > 400% FPL Full amount of APTC Penalties for repayment of excess PTCs can be waived in 2014 for certain tax filers upon request, but repayment plus interest is required. See: 28

29 3 Tax Credits if No APTC is Used Individual pays full premium Final premium tax credit is based on actual MAGI income subtracted from the cost of 2 nd lowest Silver plan Final PTC is refunded (or used to offset other taxes owed) 29

30 Marketplace sends 1095-A to ALL enrollees by January 31. It lists the enrolled household and the following monthly information: Total premium of enrolled plan Cost of silver benchmark plan APTC, if taken 30

31 Who you gonna call? The FFM is responsible for sending and correcting 1095-A s 20% of 1095-A s were sent with incorrect benchmark cost - Doesn t mean the person got the wrong APTC - Does impact reconciliation - The FFM will correct and resend by early March 1095-A s may include other errors, not clear if retroactive terminations for nonpayment were included 31

32 3 How does reconciliation work? Taxpayers receive form 1095-A from marketplace with key information Taxpayer must itemize deductions (file 1040 or 1040A; not 1040 EZ) Schedule 8962 reconciles APTC and allows individuals who did not take advance payments to claim a premium tax credit 32

33 Consumers will transfer information from the 1095-A to complete schedule This form reconciles advanced premium tax credits and is used to claim a premium tax credit if it was not taken in advance. 33

34 Form 8965 is used to: 1) claim PTCs if none were taken in advance 2) calculate additional PTCs owed to tax filer 3) determine excess PTCs to be repaid 1 &

35 Georgetown McCourt School of Public Policy Health Policy Institute Center for Children and Families Tricia Brooks Website: Say Ahhh! a child health policy blog: og/ 35