ACA & the Tax Season

ACA & the Tax Season Common Cents Tara Straw September 9, 2014

The ACA on the Tax Return 2 Reporting health coverage For every month For everyone on the return Exemptions from the individual responsibility payment If no health coverage and no exemption, calculation of the individual responsibility payment Calculation/reconciliation of the premium tax credit Common client questions

DID YOU HAVE HEALTH COVERAGE IN 2014?

2014 Coverage 4 Tax volunteer will complete a section of the intake sheet during the taxpayer interview: Did you, your spouse and everyone claimed as a dependent have health coverage in 2014? Yes, coverage all year Coverage part of the year No coverage at all I qualify for an exemption To count, the coverage must be minimum essential coverage (MEC) The vast majority of coverage will qualify as MEC or will earn the taxpayer relief from the 2014 individual responsibility payment.

Minimum Essential Coverage (MEC) 5 QUALIFIES AS MEC Employer sponsored coverage Employee coverage COBRA Retiree coverage Individual health insurance Purchased from a health insurance company Purchased through the Marketplace Provided through a student health plan Government-sponsored plans Medicare Most Medicaid CHIP Most TRICARE Most VA State high-risk insurance pools Peace Corps Refugee Medical Assistance MEC is often straightforward Coverage for one day = coverage for the month No tax document available to verify MEC in 2014 Employers and insurers will report coverage to taxpayers and IRS starting in Tax Year 2015. LIMITED BENEFITS THAT ARE NOT MEC Single-benefit coverage (e.g., dental-only or vision-only plans) Accident or disability insurance Workers compensation Limited-benefit Medicaid Exemption available for Space-available TRICARE 2014 no penalty Line of duty TRICARE AmeriCorps/AfterCorps coverage

Reporting Coverage on the Form 1040 6 If everyone on the tax return had coverage all year If anyone on the tax return had no coverage for one or more months, go to Form 8965 to determine eligibility for exemptions Exemptions? From the IRS? From the Marketplace? If no coverage and no exemption, calculate payment on Shared Responsibility Payment Worksheet.

EXEMPTIONS 7

Exemptions Report Eligibility Directly to IRS by Code Letter Requires Exemption Number Issued by the Marketplace Income below filing threshold Insurance is unaffordable (based on actual income) Certain noncitizens Short coverage gap (< 3 months) Months prior to effective date of MEC that is effective on or before May 1, 2014 Hardship, including: Life circumstances Insurance is unaffordable (based on projected income) State failure to expand Medicaid Eligible for Indian Health services Plan cancellation Member of certain religious sects Granted by either the Marketplace or the IRS Indian tribe membership Incarceration Health care sharing ministry

Exemptions Granted by the Marketplace 9 Form 8965 Part I In most cases, exemptions from the Marketplace require an application Exception: People who are in the Medicaid coverage gap get an exemption automatically if they (1) applied to the federal marketplace and (2) were denied Medicaid. People who were granted an exemption will receive an ECN (exemption certificate number), a 6 digit letter/number code.

Exemptions Granted by the IRS Form 8965 Part II Income below the filing threshold No need to file a return just to claim this exemption Form 8965 Part III Enter code for IRS-granted exemptions Many exemption options!

Exemptions at Tax Filing 11 Types of Exemptions Granted by the IRS Certain Populations Incarcerated individuals Members of Indian tribes *Or people eligible for care through the Indian Health Service Certain noncitizens Nonresident aliens Undocumented residents Members of a health care sharing ministry *Or members of certain religious sects

Exemptions at Tax Filing 12 Types of Exemptions Granted by the IRS Gaps in Coverage Short coverage gap (< 3 months) If the coverage gap is 3 months or longer, none of the months in the gap qualify for exemption. If there are multiple gaps in a year, only the first gap qualifies. Months prior to effective date of MEC effective on or before May 1, 2014 A person who enrolls in Marketplace coverage or Medicaid or CHIP or other individual or group insurance with an effective date on or before May 1, 2014 can receive an exemption for months they did not have coverage prior to that date. Transition rule for employer-sponsored coverage A person who had an offer of employer-sponsored coverage with a plan year that began in 2013 is not subject to the shared responsibility payment for the months in 2014 covered by that plan year, even if the person failed to enroll in the plan.

Exemptions at Tax Filing 13 Types of Exemptions Granted by the IRS Coverage costs >8% of income Household income = adjusted gross income (including taxable portion of SS) + foreign income + tax-exempt interest Affordability Eligible for employer-sponsored insurance (ESI)? Coverage is unaffordable if: For the employee: the lowest cost self-only plan costs more than 8% of household income. For members of the employee s family: the lowest cost family plan costs more than 8% of household income. If multiple family members have ESI offers: the aggregate cost of ESI exceed 8%. Not eligible for ESI? Coverage is unaffordable if: Lowest cost bronze plan (after premium tax credits) for all non-exempt members of the taxpayer s family costs more than 8% of household income.

Exemptions at Tax Filing 14 Types of Exemptions Granted by Marketplace Hardships Taxpayer should contact the Marketplace for an exemption if any of these circumstances apply: Homelessness Eviction in the last 6 months or facing eviction or foreclosure Utility shut-off notice Bankruptcy Domestic violence Recent death of family member Disaster that resulted in significant property damage Debt from medical expenses High expenses caring for ill, disabled or aging relative Failure of another party to comply with a medical support order for a dependent child who is determined ineligible for Medicaid or CHIP Through an appeals process, determined eligible for a Marketplace QHP, PTC, or CSR but was not enrolled Individual health insurance plan was cancelled and Marketplace plans are considered unaffordable Other hardship in obtaining coverage (including for people in AmeriCorps, VISTA and NCCC who are enrolled limited duration or self-funded coverage)

INDIVIDUAL RESPONSIBILITY PAYMENT

Individual Responsibility Payment 16 Year Tax payment penalty is is greater of: 2014 1% of income above threshold (up to cap*) $95 per adult, $47.50 per child (up to cap of $285) 2015 2% of income above threshold (up to cap*) $325 per adult, $162.50 per child (up to cap of $975) 2016 2.5% of income above threshold (up to cap*) $695 per adult, $347.50 per child (up to cap of $2,085) >2016 Values increased by a cost-of-living adjustment *national average premium of a bronze level plan purchased through a Marketplace

Example #1: John (Single) 17 Income: $17,000 (148% FPL) Filing Status: Single Adults: 1 Children: 0 Tax Filing Threshold: $10,150 Months Uninsured: 12 1. $17,000 - $10,150 = $6,850 x 1% $68.50 2. $95 x 1 adult = $95.00 Individual Responsibility Payment for 2014

Example #2: Reyes Family 18 Income: $39,500 (168% FPL) Filing Status: Married, filing jointly Adults: 2 Children: 2 Tax Filing Threshold: $20,300 Months Uninsured: 12 1. $39,500 - $20,300 = $19,200 x 1% $192.00 2. $95 x 2 adults + $47.50 x 2 children = $285.00 Individual Responsibility Payment for 2014

Tax Penalty Calculating the Payment Single 19 $600 $500 1% of income $400 $19,650 $300 $10,150 $200 $100 no penalty no penalty $95 1% of income (above threshold) $95/adult $0 Household Income

Tax Penalty Calculating the Payment MFJ with 1 dependent 20 $600 $95 x 2 adults + $47.50 x 1 child = $237.50 $500 $400 $43,050 1% of income $300 $200 $20,300 $237.50 $100 no penalty no penalty $237.50 1% of income (above threshold) $0 Household Income

Calculating the Payment Partial Year Coverage 21 The tax penalty is prorated for the number of months without coverage during the tax filing year Uninsured Gets a job with employer coverage Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Without coverage for 7 months Penalty = 7/12 of annual penalty calculation

PREMIUM TAX CREDIT

Premium Tax Credits Determine PTC eligibility Determine PTC amount Reconcile that amount with any PTC taken in advance

Premium Tax Credit Eligibility Filing status/dependency Cannot be claimed by a dependent Cannot be married filing separately Exceptions for domestic violence and abandoned spouses Enrolled in a plan through a marketplace Marketplace prohibits enrollment of people who are: Incarcerated or Undocumented immigrants However, family members of those individuals may enroll Household income between 100% and 400% of the federal poverty level (FPL) Lawfully residing immigrants who are ineligible for Medicaid are eligible even if income is below 100% FPL Not eligible for other public or employer-sponsored coverage

Premium Tax Credit 25 Benchmark Premium Cost (monthly) Premium Tax Credit: Fills the gap between the family s contribution and the cost of a benchmark plan Benchmark Premium: Second lowest cost silver plan (a mid-level plan) Expected Family Contribution: A percentage of income (2.0-9.5%) based on income & family size

Premium Tax Credit 26 Reconciliation On the tax return, the credit taken in advance credit must be reconciled with the final credit amount Most people took the PTC in advance and will receive a Form 1095-A with all necessary information Special rules for people who married during the year or shared a policy Form 8962

Premium Tax Credit Limitation on Repayment Household Income Limitation for Single, MFS, HoH taxpayers Limitation for all others Less than 200% FPL $300 $600 200% but less than 300% FPL $750 $1,500 300% but less than 400% FPL $1,250 $2,500 If income is greater than 400% FPL, all PTC must be repaid. Note on renewals: Marketplace coverage and premium tax credits will be renewed automatically. A taxpayer that faces repayment needs to contact the marketplace to adjust their credit to avoid overpayments in 2015.

COMMON CLIENT QUESTIONS

Common Client Questions Do I qualify for an exemption? Consider IRS and Marketplace exemptions How do I get insurance? November 15 February 15: Contact Marketplace Medicaid is always open If I m uninsured in 2015, will I owe a penalty next year? Consider special enrollment periods other opportunities to buy insurance Consider exemptions My 1095-A is wrong. Contact Marketplace

UPCOMING INFORMATION

Upcoming Information IRS Materials IRS forms and instructions VITA training and testing CBPP Materials VITA Basic & Advanced training slides Training webinars Tools to facilitate discussions with taxpayers Advice and answers during the tax season through weekly emails

Contact Information Tara Straw Center on Budget and Policy Priorities tstraw@cbpp.org For health reform basics, see our Refresher webinar series starting October 8. A VITA-specific webinar series begins in mid-october For more information and resources, please visit: www.healthreformbeyondthebasics.org This is a project of the Center on Budget and Policy Priorities www.cbpp.org