The Affordable Care Act and Taxes

The Affordable Care Act and Taxes ACA Reference Guide»

ACA and Taxes > Quick Reference Guide 1 2 4 5 9 10 11 > Section 1 ACA Basics > Section 2 Coverage Exemptions > Section 3 Individual Shared Responsibility Payment (Penalty) > Section 4 Premium Tax Credit (APTC and PTC) > Section 5 U.S. Citizens Living Abroad > ACA Flowchart > Glossary 16 17 17 18 19 37 > Appendix A Minimum Essential Coverage > Appendix B Federal Poverty Line > Appendix C 2014 National Average Bronze Plan Premium Table > Appendix D Exchange Offerings By State > Appendix E Scenarios > Appendix F Online Resources

Section 1 > ACA Basics 1 The ACA in One Breath Beginning 2014, US citizens, their dependents, and legal resident aliens are required to have Minimum Essential Health Care Coverage (MEC), have a health coverage exemption, or make a Shared Responsibility Payment (penalty or ISRP) with their tax return. What is MEC? Under the health care law, coverages such as an eligible employer-sponsored plan, a plan in the individual market, a government-sponsored plan, a grandfathered health plan, or other coverage recognized by the Department of Health and Human Services is called Minimum Essential Coverage. Common Types of MEC Insurance Purchased Through a Government-Run Marketplace Employer Sponsored Coverage (Including Self-Insured Plans) Medicare Part A Coverage (Hospital Insurance) Most Medicaid Coverage Children s Health Insurance Program (CHIP) Veteran s Health Program Most Private Insurance Plans Most Types of TRICARE Coverage Under US Code See Appendix A for complete listing. The Question to Ask New Tax Forms > IRS Form 8965: used to report a coverage exemption granted by the Marketplace (Exchange) or to claim a coverage exemption on your tax return. The form 8965 instructions provide the information and worksheet needed to calculate the Shared Responsibility Payment. IRS Form 8962: used to compute the Premium Tax Credit (PTC) and to reconcile advance payments of the Premium Tax Credit (APTC). Did everyone in the family (tax family) have Minimum Essential Coverage (MEC) for the entire year? If yes, and any coverage for any month was obtained through a government-run Marketplace for any member of the tax family, check the box on Form 1040, line 61 (Form 1040A, line 38) and use the taxpayer s 1095-A to calculate the Premium Tax Credit on Form 8962. If yes, and the insurance was exclusively obtained outside of a government-run Marketplace, check the box on Form 1040, line 61 (Form 1040A, line 38). If no, the taxpayer may be subject to a penalty unless he/she qualified for an exemption. Use Form 8965 to report exemptions. CAUTION: Do not provide guidance on choosing a health care plan unless you have an active insurance license.

Section 2 > Exemptions 2 What is a Coverage Exemption? A coverage exemption is granted to taxpayers and members of their tax family in order to excuse them from paying the shared responsibility payment for the months they did not obtain MEC. Where do Coverage Exemptions Come From? Several coverage exemptions from the Individual Shared Responsibility Payment mandate are available to the taxpayer and his or her tax family. Exemptions are either: Granted by the Department of Health and Human Services (HHS) through the Marketplace, or Claimed on the tax return. Other Facts about Exemptions An individual may be eligible for more than one exemption; HHS encourages individuals to apply for all exemptions that apply. Most exemptions will need to be renewed annually, although Religious and Member of Indian Tribe are continuous exemptions. Exemptions may be given to the entire tax family or an individual member of the family. An exemption may be for a set period of time such as specific months or for the entire year. All exemptions are reported on Form 8965. Some exemptions, referred to as transitional relief, are available for the 2014 tax year only. Due Diligence Tips: Take reasonable steps to ensure the information provided about health coverage is accurate. Identify any coverage gaps to ensure an accurate assessment; compliance with the mandate is determined on a monthly basis. Question anything unusual, inconsistent, or incomplete. Ask for documentation. Remind taxpayers that by signing their return, they are stating under penalty of perjury that the return is accurate to the best of their knowledge. Don t file a return if you doubt the accuracy of the information provided by the taxpayer. IMPORTANT: For Marketplace-Granted Exemptions, the taxpayer must go to the Marketplace to apply for an exemption certificate. The taxpayer will receive an Exemption Certificate Number (ECN) that must be included on Form 8965. HHS-Granted Exemptions Also known as Marketplace-Granted Coverage Exemptions, these exemptions tend to be proactive. The taxpayer should have applied for an exemption through the Marketplace prior to December 31, 2014, but can apply after year-end if necessary. Taxpayers can go to https://www.healthcare.gov/fees-exemptions/ apply-for-exemption/ to apply for a Marketplace exemption. Once the exemption request is approved, the taxpayer should receive an Exemption Certificate Number. Part I of Form 8965 is completed when the taxpayer has a Marketplace exemption.

Section 2 > Exemptions 3 Exemptions Claimed on Tax Return Also known as IRS-Granted Coverage Exemptions, these exemptions tend to be retroactive and based on the tax situation. IRS exemptions are claimed on part III of Form 8965 when the tax return is filed. No Exemption Certificate Number (ECN)? Those that qualify for an HHS exemption, but have not received their ECN prior to filing their return, can enter Pending in part I, column C of Form 8965. Health Care Coverage Exemptions > Complete List Coverage Exemptions Coverage is considered unaffordable because the minimum amount one must pay for premiums is more than 8% of their household income. Granted by Marketplace Claimed on tax return Code for Exemption A Short-term coverage gap without coverage for less than 3 consecutive months during the year. B Citizens living abroad and certain noncitizens: a US citizen or resident who spent at least 330 full days outside of the US during a 12-month period, a U.S. citizen who is a bona fide resident of a foreign country or U.S. territory, or neither a U.S. citizen or U.S. national nor an alien lawfully present in the U.S. C Household income below the minimum filing threshold. No Code, See Part II, Form 8965 Members of a health care sharing ministry. D Members of Federally-recognized Indian tribes. E Incarceration (in a jail, prison, or similar penal institution or correctional facility after the disposition of charges). F Members of certain recognized religious sects. No Code, See Part I, Form 8965 Enrolled in certain types of Medicaid and TRICARE programs that are not minimum essential coverage. (Available only in 2014.) H One who is eligible for, but did not purchase, coverage under an employer plan with a plan year that started in 2013 and ended in 2014. (Available only in 2014.) H Hardships Two or more family members aggregate cost of self-only employer-sponsored coverage is more than 8% of household income, as is the cost of any available employer-sponsored coverage for the entire family. G Purchased insurance through the Marketplace during the initial enrollment period but have a coverage gap at the beginning of 2014. G Applied for CHIP coverage during the initial open enrollment period and were found eligible for CHIP based on that application but have a coverage gap at the beginning of 2014. G An American Indian, Alaska native, or a spouse or descendent of either who is eligible for services through an Indian health care provider. E Gross income is below the filing threshold. No Code, See Part II, Form 8965 Experiencing circumstances that prevent one from obtaining coverage under a qualified health plan. No Code See Part I, Form 8965 Do not have access to affordable coverage based on projected household income. No Code See Part I, Form 8965 Ineligible for Medicaid solely because the state in which they live does not participate in the Medicaid expansion under the Affordable Care Act. No Code See Part I, Form 8965 Been notified that their health insurance policy will not be renewed and they consider the other plans available unaffordable. No Code See Part I, Form 8965

Section 3 > Individual Shared Responsibility Payment 4 What is the Individual Shared Responsibility Payment (ISRP)? The ISRP is simply a penalty for not having Minimum Essential Health Care Coverage. The taxpayer incurs an ISRP when any member of his or her tax family goes without MEC for any month during the year without an exemption. How is the ISRP Calculated? For 2014, the amount is the greater of: - 1% of the household income that is above the tax return filing threshold for the taxpayer s filing status, or, - The family s flat dollar amount, which is $95 per adult and $47.50 per child (under age 18), limited to a family maximum of $285. ISRP - % of Household Income 2014 1 % income 2015 2 % income 2016 2.5 % income ISRP - Flat Dollar Amounts Year Adult Child (under 18) 2014 $ 95 $ 47.50 2015 $325 $162.50 2016 $695 $347.50 It will not exceed the cost of the average National Bronze premium for the family size involved. The worksheet is available in the Form 8965 instructions; the calculated penalty carries to line 61 of Form 1040. Taxpayers owe 1/12th of the annual SRP for each month they or their dependent(s) don t have coverage and don t qualify for a coverage exemption.

Section 4 > Premium Tax Credit 5 What is the Premium Tax Credit (PTC)? The PTC is a refundable tax credit for certain people who enroll, or whose family members enroll, in a qualified health plan offered through a government-run Marketplace. The credit provides financial assistance to pay insurance premiums. Who Qualifies for the Premium Tax Credit? In general, taxpayers can receive a premium tax credit if they meet all of the following: Taxpayer, spouse, or dependents were enrolled at some time during the tax year in one or more qualified health plans offered through the Marketplace. Taxpayer, spouse, or dependents were not eligible for other MEC (such as employer-sponsored coverage) during the months they were enrolled in the qualified plan through the Marketplace. Taxpayer is an applicable taxpayer. IMPORTANT: If the taxpayer purchased health coverage through the Marketplace, they will receive a Form 1095-A. The taxpayer must provide Form 1095-A in order for you to calculate their Premium Tax Credit and reconcile any advance payments of the credit. Other Facts about the Premium Tax Credit Form 8962 must be filed to compute and take the PTC on a tax return. A credit is allowed for any month during the year that a member of the tax family is both: 1. Enrolled in One or More Qualified Health Plans Through a Marketplace 2. Not Eligible for Other Minimum Essential Coverage. PREMIUM TAX CREDIT > Maximum Premium as Percentage of Income Household Income Level (% above Federal Poverty Level) Maximum Premium as Percentage of Income Less than 133% 2.0% At least 133% but less than 150% 3.0% - 4.0% At least 150% but less than 200% 4.0% - 6.3% At least 200% but less than 250% 6.3% - 8.05% At least 250% but less than 300% 8.05% - 9.5% At least 300% but less than 400% 9.5%

Section 4 > Premium Tax Credit 6 How is the Premium Tax Credit Calculated? The PTC is calculated, and advance payments reconciled, by using the following data reported on Form 1095-A: Monthly Premiums Paid by Taxpayer Monthly Premium Amount of the Second Lowest Cost Silver Plan (SLCSP) Monthly Advance Payment of the Premium Tax Credit (If Any) As shown on Form 1095-A > If Form 1095-A is Lost, Stolen or Incorrect If Form 1095-A is lost, never received, or incorrect, taxpayers will need to contact their Marketplace to receive another copy. If taxpayers are unable to obtain Form 1095-A through reasonable measures, they should review monthly billing statements from their coverage provider or contact the provider to obtain the information necessary to accurately complete Form 8962 coverage information, monthly premium amounts, and the amount of monthly advance credit payments made on their behalf. What is the Advance Premium Tax Credit (APTC)? The APTC is a series of advance payments of the premium tax credit paid by the government to the insurance company on the qualifying taxpayer s behalf to lower the out-of-pocket cost for monthly premiums. IMPORTANT: If a taxpayer or member of the tax family received advance payments of the PTC, they are required to file a tax return with Form 8962, even if they are under the filing threshold. How Does the APTC Work? When signing up for insurance, eligibility for the premium tax credit is determined based on the taxpayer s income and family size. Those eligible for the credit may choose to either: have some or all of the estimated credit paid in advance directly to the insurance company to lower monthly premiums; or wait to receive the credit when they file their 2014 tax return. What changes can impact the actual PTC received: Increases or Decreases in Household Income Marriage Divorce Birth or Adoption of a Child Other Changes in Household Composition Gaining or Losing Eligibility for Government-Sponsored or Employer- Sponsored Health Care Coverage Change of Address

Section 4 > Premium Tax Credit 7 What Happens if Advance Payments are Less or More than the PTC Due? If the amount of advance credit payments is less than the tax credit due, the difference is paid as a refundable tax credit when the tax return is filed. If the amount of payments is more than the tax credit due, the taxpayer must repay the excess advance payment when the tax return is filed. Advance credit payment recipients are encouraged to notify the Marketplace as life changes occur in order to adjust advance payments accordingly. Otherwise, an unwelcome surprise may show up at tax time. Repayment Caps Some lower-income taxpayers may qualify for relief from the advance repayment requirement. Federal Poverty Level Single Other Less than 200% $300 $600 200% but less than 300% $750 $1,500 300% but less than 400% $1,250 $2,500 400% or more No cap No cap Marketplace Open Enrollment Open Enrollment is the period of time during the year when insurance can be purchased by eligible persons through the Healthcare Marketplace. IMPORTANT: After February 15, 2015, insurance can be purchased through the Marketplace only if the taxpayer qualifies for a Special Enrollment due to a qualifying life event such as marriage, birth or adoption of a child, or loss of other health coverage. 2015 Open Enrollment: November 15, 2014 February 15, 2015 When enrollment occurs between the 1st and the 15th of the month, coverages starts the first day of the following month. Example: if enrolled Dec. 14, coverage will begin Jan. 1, 2015. When enrollment occurs between the 16th and the last day of the month, coverage starts the first day of the second following month. Example: if enrolled Jan. 16 2015, coverage will being Mar. 1, 2015. When enrollment occurs between Feb. 1, 2015 and the deadline of Feb. 15, 2015, coverage will begin Mar. 1, 2015. Alternative Calculation for Newlyweds The Alternative Marriage Calculation may be available to taxpayers who: are unmarried at the beginning of the taxable year, and are married at the end of the taxable year, and at least one or both spouses received advanced premium tax credit payments during the year, and are using the Married Filing Jointly filing status. Optional election: Electing the alternative marriage calculation is optional but may reduce the amount of excess APTC that must be repaid. If eligible, complete Part 5 of Form 8962 to elect the alternative calculation for the pre-marriage months. See Form 8962 instructions for details and examples of the calculation.

Section 4 > Premium Tax Credit 8 Shared Policy Allocation In general, if any of the following apply, you will need to complete Part 4 of Form 8962: The taxpayer or a member of the tax family was enrolled in a qualified health plan by someone outside the tax family. The taxpayer or a member in the tax family enrolled someone outside the tax family in a qualified health plan. The taxpayer may have to allocate the values reported on Form 1095-A (the enrollment premium, the premium for the applicable SLCSP, and the advance credit payments) with another taxpayer a shared policy allocation. The taxpayer and former spouse can allocate these amounts in any proportion agreed upon, but the allocation of all amounts must be in the same proportion. If the taxpayer and former spouse cannot agree on a proportion, the taxpayer and former spouse must allocate these amounts at a value of 50%. The following taxpayers may have to complete the shared policy allocation: A taxpayer who got divorced or legally separated in 2014 A taxpayer who claims a personal exemption deduction for an individual enrolled in a policy by another taxpayer A taxpayer who enrolls an individual in a policy, but another taxpayer claims a personal exemption deduction for the individual A taxpayer filing a separate return from his or her spouse See Table 3 Shared Policy Allocation in the Form 8962 instructions for detailed guidance on when to complete the Shared Policy Allocation.

Section 5 > U.S. Citizens Living Abroad 9 Are Citizens Living Abroad Governed By the ACA? Yes. However, if they are not physically present in the United States for at least 330 full days within a 12-month period, they are treated as having MEC for that 12-month period regardless of whether or not they enroll in a health coverage plan. Bona Fide Resident Rule U.S. citizens who are bona fide residents of a foreign country for the entire tax year are treated as having MEC for that year. In most cases, these individuals qualify for the foreign earned income exclusion under section 911. Those who qualify for this rule comply with the individual shared responsibility provision; no further action is necessary. They will report their status on Form 8965 - Health Coverage Exemptions when they file their tax return. Individuals may qualify for this rule even if they can t use the section 911 exclusion for all of their foreign earned income. For more information on the foreign earned income exclusion, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. Don t meet physical presence or residency requirements? U.S. citizens must have MEC, qualify for an exemption, or pay the penalty if they do not meet physical presence or residency requirements. MEC does include a group health plan provided by an overseas employer.

ACA Flowchart ECN - Exemption Certificate Number HHS - Dept. of Health & Human Services Marketplace - Government-run Health Insurance Exchange MEC - Minimum Essential Coverage PTC - Premium Tax Credit Tax Family - Taxpayer, Spouse, & Dependents Terms 10 Does taxpayer meet filing threshold, or, did he/she obtain Marketplace insurance coverage? NO Taxpayer not required to file. No action required. No Filing Requirement. No Penalty. No Credit. YES Did the tax family have MEC for the entire year outside of the Marketplace? YES Check box full-year coverage on Form 1040, line 61 (Form 1040A, line 38). No further action required. Full Coverage Outside of Marketplace. No Penalty. No Credit. NO Did the tax family have either: 1. Marketplace coverage all 12 months 2. Marketplace coverage for a portion of the year, and other MEC for the remainder of the year? YES Check box full year coverage on Form 1040, line 61 (Form 1040A, line 38). Taxpayer provides 1095A form(s). Calculate the PTC on Form 8962. Full Coverage. Marketplace Coverage for at Least a Portion of the Year No Penalty. Calculate PTC. NO For the entire period of time of no coverage, did the tax family qualify for either: 1. Marketplace (HHS) exemptions 2. Exemptions claimed on the tax return? NO YES Calculate the taxpayer s Shared Responsibility Payment. Claim any Marketplace exemptions by entering the ECN(s) on Form 8965 and filing it with the tax return. Claim any IRS-issued exemptions by filing Form 8965 with the tax return. Claim any Marketplace exemptions by entering the ECN(s) on Form 8965 and filing it with the tax return. Claim any IRS exemptions by filing Form 8965 with the tax return. Partial or No Coverage. Not Fully Exempt. Calculate Penalty. Calculate PTC if Necessary. NOTE: 1095A form(s) will be issued by the Marketplace if anyone in the tax family had Marketplace coverage for any months during the year. Calculate the PTC on Form 8962. Partial or No Coverage. Fully Exempt. No Penalty. Calculate PTC if Necessary. NOTE: 1095A form(s) will be issued by the Marketplace if anyone in the tax family had Marketplace coverage for any months during the year. Calculate the PTC on Form 8962.

Glossary 11 Advance Payment of the Premium Tax Credit (APTC) APTC is a payment made by the government to the insurance provider to help pay for a taxpayer s insurance premiums. APTC eligibility is based on the government-run Marketplace s estimate of the PTC that the taxpayer will be able to take on his or her tax return. If APTC was paid for an individual in the tax family, Form 8962 is used to reconcile (compare) the APTC with the PTC. If the APTC is more than the PTC, there was an excess APTC that must be repaid; the excess is subject to certain caps based on income level. If the PTC is more than the APTC, the taxpayer realizes a positive tax benefit on his or her tax return. Applicable Taxpayer Only applicable taxpayers can claim the PTC. Generally, to be considered an applicable taxpayer, household income must be at least 100% but not greater than 400% of the Federal Poverty Line for the family size and resident state. Exceptions: Taxpayers with household income below 100% of the FPL who are not citizens, but are lawfully present in the U.S. are eligible for the PTC if they meet all other requirements. Citizens that qualified for an advanced PTC at enrollment, that at the end of the year ended up with household income below 100% of the FPL and are not required to repay the advanced PTC. If married, the taxpayer must file a joint return with his or her spouse. Exceptions: Married filers who meet all of the head of household rules are considered unmarried by the IRS. Taxpayer meets the requirements for married persons who live apart under Were you Single or Married? rules in the 1040NR instructions. Taxpayer is a victim of domestic abuse or spousal abandonment and is living apart from the spouse at the time of filing the tax return. o Domestic Abuse includes physical, psychological, sexual, or emotional abuse, including efforts to control, isolate, humiliate and intimidate or to undermine the victim s ability to reason independently. Abuse of the victim s child or any family member living in the household may constitute abuse of the victim. o Spousal Abandonment taxpayer is victim of spousal abandonment for a tax year if, taking into account all facts and circumstances, the taxpayer is unable to locate the spouse after reasonable diligence. If any of these situations apply, check the box Relief in the top right hand corner of Form 8962. Do not attach documentation of the abuse or abandonment to the tax return. Keep documentation with the tax records. Coverage Family Coverage family includes all individuals in the tax family who are enrolled in a qualified health plan and are not eligible for MEC (other than coverage in the individual market). The individuals included in the coverage family may change from month to month. If individuals in the tax family are not enrolled in a qualified health plan, or are enrolled in a qualified health plan but are eligible for MEC (other than coverage in the individual market), they are generally not part of the coverage family. Dependents of more than one taxpayer The tax household does not include someone that can, but is not, claimed as a dependent if the dependent is a) properly claimed on another taxpayer s return, or b) can be claimed by a taxpayer with higher priority under the tie-breaker rules. Exchange (See Marketplace) Exemption Certificate Number (ECN) The ECN certifies a Marketplace-granted exemption, and should be obtained by the taxpayer from the Marketplace. The ECN is reported on Form 8965.

Glossary 12 Family Coverage Family coverage is used to determine if coverage is unaffordable for the purposes of claiming a coverage exemption. If the taxpayer, or spouse if filing jointly, is eligible for employersponsored family coverage, the required contribution amount for any member of the family is the premium the taxpayer would pay for the lowest cost family coverage that covers the taxpayer and everyone in the non-exempt family. Family Size For purposes of the PTC, family size includes the taxpayer, spouse if filing joint, and dependents in other words, anyone who can be claimed as a personal exemption on the tax return. Federal Poverty Line (FPL) Also known as the Federal Poverty Level, the FPL is determined annually (and adjusted for inflation) by the Department of Health and Human Services (HHS). The FPL is an income amount that is considered poverty level. Form 1040 ACA References Shared Responsibility Payment Worksheet (1040, line 61; 1040A, line 38; 1040EZ, line 11) Form 1040 o Line 46 Excess Advance Premium Tax Credit Repayment o Line 61 Individual Responsibility Payment; Full-Year Coverage Indicator o Line 69 Net Premium Tax Credit Form 1040A o Line 29 Excess Advance Premium Tax Credit Repayment o Line 38 Individual Responsibility Payment; Full-Year Coverage Indicator o Line 45 Net Premium Tax Credit Form 1095-A Health Insurance Marketplace Statement The Marketplace is required to send Form 1095-A to the policy holder identified in the enrollment application no later than 1/31/2015. The form is used to report information to the IRS about any family members who enroll in a qualified health plan through the Marketplace. Along with information about the recipients, the form includes monthly premium amounts, monthly premium amounts of the Second Lowest Cost Silver Plan, and any monthly advance payments of the PTC. The information provided allows the taxpayer to calculate and reconcile the Premium Tax Credit on Form 8962. Form 1095-B Health Coverage Form 1095-B reports the name, address and social security number of all individuals (employees, spouses, dependents and others) who are covered under an employer s health coverage plan and the number of months during which the individual had at least one day of coverage. It is intended to report to the IRS which employees had minimum essential coverage and for what time period. Form 1095-B is not required to be filed for 2014. Form 1095-C Employer-Provided Health Insurance Offer and Coverage Applicable Large Employers are required to use this form, starting in January of 2016, to report information about offers of health coverage and enrollment in health coverage to their employees. An employer filing Form 1095-C generally reports the number of full-time employees for each calendar month and lists coverage information for each full-time employee. Streamlined reporting methods are available if employers meet certain coverage standards, such as providing coverage to at least 98% of all employees (full-time and part-time). Form 1095-C is not required to be filed by any employer for 2014.

Glossary 13 Form 8962 Premium Tax Credit (PTC) If the taxpayer bought insurance through a government-run Marketplace (Exchange) and they wish to claim the PTC, or if they chose to receive advance payments to help cover insurance premiums, Form 8962 must be completed and sent in with the tax return. Included on this form: Part 1 - Annual & Monthly Contribution Part 2 - Premium Tax Credit Claim & Reconciliation Part 3 - Repayment of Excess of Advance Payment Part 4 - Shared Policy Allocations Part 5 - Alternative Calculation for the Year of Marriage Form 8965 Health Coverage Exemptions Use Form 8965 to report a coverage exemption granted by a government-run Marketplace (Exchange) or to claim a coverage exemption on the tax return. Only one 8965 should be filed for each tax household. Some coverage exemptions are available only from the Marketplace, while others are available only by claiming them on the tax return. Gross Income For purposes of Form 8965, Part II, line 7b, gross income means all income received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of the taxpayer s main home (even if they can exclude part or all of it). Include only the taxable part of social security benefits. Also include gains, but not losses, reported on Form 8949 or Schedule D. Gross income from a business means, for example, the amount on Schedule C, line 7 or Schedule F, line 9. In figuring gross income, do not reduce your income by any losses, including any loss on Schedule C, line 7 or Schedule F, line 9. Health Coverage Exemption Individuals must have health care coverage or a health coverage exemption to avoid having to pay a shared responsibility payment. Form 8965 is used to report exemptions for the taxpayer, spouse, or dependent granted by the Marketplace or to claim an exemption on the tax return. Some coverage exemptions are available only from the Marketplace, while others are available only by claiming them on the tax return. Household Income Household income is the modified adjusted gross income (modified AGI) of a taxpayer and spouse (if filing a joint return) plus the sum of the modified AGI for all other individuals in the tax family who are required to file a tax return. Household income does not include the modified AGI for those individuals in the tax family who are filing a tax return only to claim a refund of withheld income tax or estimated tax. Marketplace A government agency or nonprofit entity that makes qualified health plans available to individuals. The term Marketplace refers to state Marketplaces, regional Marketplaces, subsidiary Marketplaces, and a federally- facilitated Marketplace. It does not refer to privately run marketplaces or SHOP marketplaces. Minimum Essential Coverage Under the health care law, coverage under an eligible employer-sponsored plan, a plan in the individual market, a government-sponsored plan, a grandfathered health plan, or other coverage recognized by the Department of Health and Human Services is called minimum essential coverage. See Appendix A for a complete list of what qualifies as minimum essential coverage.

Glossary 14 Modified Adjusted Gross Income (MAGI) For purposes of the PTC, MAGI is AGI plus certain income that is not subject to tax. This includes foreign earned income, tax-exempt interest, and social security benefits not included in income (including tier 1 railroad retirement benefits). It does not include Supplemental Security Income (SSI). For purposes of Form 8965, MAGI is the adjusted gross income plus certain other items from your tax return. If filing Form 1040, MAGI is determined by adding the amounts reported on lines 8b and 37 of the Form 1040. If foreign earned income exclusion, housing exclusion, or housing deduction is claimed, add the amount from Form 2555, lines 45 and 50 or Form 2555-EZ, line 18. If filing Form 1040A, figure MAGI by adding the amounts on 1040A, lines 8b and 21. If filing Form 1040EZ, figure MAGI by adding 1040EZ, line 4 and any tax-exempt interest reported in the space to the left of line 2. Premium Tax Credit (PTC) The PTC is a refundable tax credit for certain people who enroll, or whose family members enroll, in a qualified health plan offered through a government-run Marketplace. The credit provides financial assistance to pay insurance premiums. Form 8962 must be filed to compute and take the PTC on a tax return. A credit may be allowed for any month during the year that a member of the tax family is both 1) enrolled in one or more qualified health plans through a Marketplace and 2) not eligible for other minimum essential coverage. Qualified Health Plan For purposes of the PTC, a qualified health plan is a health insurance plan or policy purchased through a government-run Marketplace at the Bronze, Silver, Gold, or Platinum level. Recognized Religious Sect For purposes of Form 8965, a religious sect that has been in existence since December 31, 1950, that is recognized by the Social Security Administration as conscientiously opposed to accepting any insurance benefits, including Medicare and Social Security. Responsibility Payment Worksheet This worksheet is included in the Form 8965 instructions, and is used to calculate the shared responsibility payment if the taxpayer or another member of the tax household did not have minimum essential coverage or a coverage exemption for one or more months. Line 14 of the worksheet will carry to Form 1040, line 61; Form 1040A, line 38; or Form 1040EZ, line 11. Second Lowest Cost Silver Plan (SLCSP) The SLCSP is a level of insurance coverage available through a Marketplace for the rating area in which the taxpayer lives. The SLCSP amount will be reported on Form 1095-A and used to calculate the premium tax credit allowed. Shared Responsibility Payment If the taxpayer, spouse, or dependents do not have minimum essential coverage, nor a coverage exemption for any month during 2014, the taxpayer will incur a Shared Responsibility Payment. For 2014, the SRP amount is the greater of: 1% of the household income that is above the tax return filing threshold for the taxpayer s filing status, or The family s flat dollar amount, which is $95 per adult and $47.50 per child (under age 18), limited to a family maximum of $285. It will not exceed the average cost of National Bronze level insurance. For 2014 the Average Cost of National Bronze Level insurance is $204 per person per month, or a family cap of $1020 per month.

Glossary 15 Short-Term Coverage Gap In general, a continuous gap in coverage that lasts less than three months qualifies as a short coverage gap. If an individual has more than one short coverage gap during a year, the short coverage gap exemption only applies to the first gap. Individuals are treated as having minimum essential coverage for a calendar month if they have coverage for at least one day during that month. Tax Family / Tax Household The tax family consists of the individuals for who the taxpayer could claim a personal exemption on the tax return (taxpayer, spouse and dependents). Tax household does not include someone that can be claimed as a dependent if the dependent is properly claimed on another taxpayer s return. Unaffordable Coverage For purposes of Form 8965, coverage is considered unaffordable if the required contribution is more than 8% of household income.

Appendix A > Minimum Essential Coverage 16 Minimum Essential Coverage What Qualifies? Employer Sponsored Coverage Employee Coverage (Including Self-Insured Plans) COBRA Coverage Retiree Individual Health Coverage Purchased From an Insurance Company Directly Purchased Through the Marketplace Provided Through a Student Health Plan Provided Through a Student Health Plan that is Self-Funded by a University (Only for a Plan Year Beginning on or Before Dec. 31, 2014, Unless Recognized as MEC by HHS) Coverage Under Government-Sponsored Programs Medicare Part A Coverage (Hospital Insurance) Medicare Advantage Plans Most Medicaid Coverage Children s Health Insurance Program (CHIP) Most Types of TRICARE Coverage Under Title 10, Chapter 55 of the United States Code Comprehensive Health Care Programs Offered by the Department of Veterans Affairs State High-Risk Health Insurance Pools (Only for a Plan Year Beginning on or Before December 31, 2014, Unless Recognized as MEC by HHS) Coverage Provided to Peace Corps Volunteers Department of Defense Non-Appropriated Fund Health Benefits Program Refugee Medical Assistance Other Coverage Certain Foreign Coverage Certain Coverage for Business Owners May Provide Limited Benefits But Does Not Qualify as Minimum Essential Coverage: Coverage Consisting Solely of Excepted Benefits such as: o Standalone Dental and Vision Insurance o Accident or Disability Income Insurance o Workers Compensation Insurance Medicaid Providing Only Family Planning Services* Medicaid Providing Only Tuberculosis-Related Services* Medicaid Providing Only Coverage Limited to Treatment of Emergency Medical Conditions* Pregnancy-Related Medicaid Coverage* Medicaid Coverage for the Medically Needy* Section 1115 Medicaid Demonstration Projects* Space Available TRICARE Coverage Provided Under Title 10, Chapter 55 of the United States Code for Individuals Who Are Not Eligible for TRICARE Coverage for Health Services from Private Sector Providers* Line of Duty TRICARE Coverage Provided Under Title 10, Chapter 55 of the United States Code* AmeriCorps Coverage for Those Serving in Programs Receiving AmeriCorps State and National Grants AfterCorps Coverage Purchased by Returning Members of the Peace Corps *In Notice 2014-10, the IRS announced relief from the individual shared responsibility payment for months in 2014 in which individuals are covered under one of these programs.

Appendix B > Federal Poverty Lines 17 2013* Poverty Lines for the 48 Contiguous States & DC For households with more than 8 persons, add $4,020 for each additional person (100% Poverty Line). Persons in household 100% Poverty Line 400% Poverty Line 1 $11,490 $45,960 2 $15,510 $62,040 3 $19,530 $78,120 4 $23,550 $94,200 5 $27,570 $110,280 6 $31,590 $126,360 7 $35,610 $142,440 8 $39,630 $158,520 2013* Poverty Lines for Alaska For households with more than 8 persons, add $5,030 for each additional person (100% Poverty Line). Persons in household 100% Poverty Line 400% Poverty Line 1 $14,350 $57,400 2 $19,380 $77,520 3 $24,410 $97,640 4 $29,440 $117,760 5 $34,470 $137,880 6 $39,500 $158,000 7 $44,530 $178,120 8 $49,560 $198,240 2013* Poverty Lines for Hawaii For households with more than 8 persons, add $4,620 for each additional person (100% Poverty Line). Persons in household 100% Poverty Line 400% Poverty Line 1 $13,230 $52,920 2 $17,850 $71,400 3 $22,470 $89,880 4 $27,090 $108,360 5 $31,710 $126,840 6 $36,330 $145,320 7 $40,950 $163,800 8 $45,570 $182,280 * For the purposes of the Premium Tax Credit, eligibility for a certain year is based on the most recently published set of poverty lines on the first day of the annual open enrollment period. As a result, the tax credit for 2014 will be based on 2013 poverty lines. Appendix C > National Average Bronze Plan Premium Table 2014 National Average Bronze Plan Premium Table Number of Months Family Size If you did not have MEC or an exemption for - 1 2 3 4 5 or more 1 204 408 612 816 1,020 2 408 816 1,224 1,632 2,040 3 612 1,224 1,836 2,448 3,060 4 816 1,632 2,448 3,264 4,080 5 1,020 2,040 3,060 4,080 5,100 6 1,224 2,448 3,672 4,896 6,120 7 1,428 2,856 4,284 5,712 7,140 8 1,632 3,264 4,896 6,528 8,160 9 1,836 3,672 5,508 7,344 9,180 10 2,040 4,080 6,120 8,160 10,200 11 2,244 4,488 6,732 8,976 11,220 12 2,448 4,896 7,344 9,792 12,240 BRONZE

Appendix D > State Marketplace & Medicaid Expansion Decisions 18 Current State Marketplace and Medicaid Expansion Decisions (as of January, 2015) WA CA OR* NV* ID UT MT WY CO ND SD NE KS MN IA MO WI IL MI OH IN KY WV PA VA VT NY DC ME RI CT NJ DE MD NH MA AZ NM* OK AR TN SC NC TX LA MS AL GA AK FL HI State-Based Marketplace and Implementing the Medicaid Expansion (16 States including DC) State-Based Marketplace and Not Expanding Medicaid (1 State) Federally-Facilitated or Partnership Marketplace and Implementing the Medicaid Expansion (12 States) Federally-Facilitated Marketplace and Not Expanding Medicaid (22 States) * New Mexico, Nevada, and Oregon are Federally-supported State-based Marketplaces for 2015.

Appendix E > Scenarios 19 Individual Shared Responsibility Payment (ISRP): Amanda is 32 years old. Her son Trent is 12 years old. Amanda s filing status is Head of Household. Her annual Household Income is $72,850. Amanda and Trent were without health insurance coverage for 6 months; for the uncovered months they did not qualify for an exemption. In this example, the % of income is greater than the Family Flat Dollar Amount penalty. The % of income does not exceed the average cost of National Bronze insurance for the uncovered months. The penalty of $299, based on % of income, carries to line 61 on the 1040. X indicates months with no coverage Family flat dollar amount % of income for uninsured months 299 Average cost of national bronze premium 2,448 Penalty - 299

Appendix E > Scenarios 20 Shared Responsibility Penalty - 299

Appendix E > Scenarios 21 Overpayment of Advance PTC Scenario With a Cap: Martha Jones is filing a Single return. When Martha enrolled in the Marketplace she estimated her income to be $14,000 and selected the option for the estimated premium tax credit to be sent to the insurance carrier on her behalf. At year end, Martha s actual income was $37,000 $14,000 in wages and $23,000 in alimony received. This variance in income created an overpayment of the APTC, however the repayment is limited because the Household Income is less than 400% of the Federal Poverty Level. Actual overpayment of advance premium tax credit 1,716 Repayment amount is limited 1,250

Appendix E > Scenarios 22 Repayment due for overpayment of the APTC 1,250

Appendix E > Scenarios 23 Hardship and Short Coverage Gap Exemption Example: Harold Wayne is a single taxpayer with household income of $35,000. He did not have any coverage January, February, March or April. He did have employer coverage from May 1 October 15, 2014. He did not have any coverage from October 16 December 31, 2014. Harold qualifies for Hardship Exemption Code G for the months of January April. This can be claimed on the 8965 at the time of filing the tax return. Harold also qualifies for Short Coverage Gap Exemption Code B for the months of November and December. This can also be claimed on the 8965 at the time of filing the tax return. Penalty if no exemptions are claimed on the tax return: Penalty if the exemptions are NOT claimed on the tax return - 124

Appendix E > Scenarios 24 Form 1040, page 2, line 61 shows penalty: Penalty - 124

Appendix E > Scenarios 25 NO penalty if coverage exemptions are entered on the 8965: You may use multiple exemptions

Appendix E > Scenarios 26 Form 1040, page 2, line 61 - no penalty due to exemptions claimed: No penalty

Appendix E > Scenarios 27 Unaffordable Coverage Scenario: Thomas Weston is a single taxpayer with Household Income of $45,000. His employer offered him insurance at a cost of $337.50/mo, or $4050 for the year, but he did not participate in the plan. The cost of insurance offered by the employer is 9% of his household income. Because the self-only coverage was not greater than 9.5% of his household income, Thomas was not eligible for a Premium Tax Credit. Thomas was uninsured for the entire year, but will not owe a penalty if the Affordability Exemption (code A) is taken on the 8965. Note: If the cost of insurance is greater than 8%, the insurance is considered unaffordable and the Exemption Code A can be taken when filing the tax return. 8% of household income (45K) 3,600 The annual cost of insurance is compared each month

Appendix E > Scenarios 28 If the exemption applies for the full year, check the box in column D

Appendix E > Scenarios 29 Alternate Marriage Calculation Scenario: Tom and Sally were married on July 15, 2014. Sally has 2 children from a prior marriage. Their first full month of marriage is August. Tom purchased a single insurance plan through the Marketplace and elected to have advance credit payments forwarded to his insurance carrier. Sally and her two children had a family plan through the Marketplace and also elected to have advance credit payments forwarded to the insurance carrier. In July, they notified the Marketplace of the change in family status, the individual policies were cancelled and they all went under one insurance policy on August 1. Result of the 8962 reconciliation if the Alternate Marriage Calculation is not used: Amount of repayment due when no alternate marriage calculation is used - 819

Appendix E > Scenarios 30 Results using the Alternate Marriage calculation: Alternate calculation NOT used Taxpayer - Alternate calculation used Spouse/ children Alternate calculation used Compare the calculations use the lower of the two

Appendix E > Scenarios 31 The alternate calculation is being used for the unmarried months (including the month of marriage). 297 + 185 for a total of 482 instead of the annual calculation of 594. By using the alternate calculation, the overpayment is 35 vs 819

Appendix E > Scenarios 32 Shared Policy Allocation Scenario: Rose and her former husband share custody of their son Michael. Rose purchased insurance in 2014 for Michael and herself through the Marketplace. 2014 is the year James (the former husband) is allowed to claim their son Michael. Since the policy covered one person in the tax family (Rose) and one person in the former spouse family, Rose and James must both complete Part 4 of Form 8962. Rose and James agreed on the following allocation: Rose is responsible for 75% and James is responsible for 25% of the total family plan that covered Rose and Michael. Rose purchased the second lowest cost silver plan for herself and Michael for the period of January - December. The cost of the premium was $1,000. Rose contacted the Marketplace to advise them of a change to her income, and as a result the Advance Premium Tax Credit was reduced from April through December. Her advance premium was $600 for January, February and March, and $400 from April December. On Form 1095-A her amounts were reported as: Total Premiums = $12,000 2nd Lowest Cost Silver Plan = $12,000 Advance Payments = $5400. Example of the 8962 without the shared policy allocation: The additional Premium Tax Credit would be 2,604 if the Shared Policy Allocation were not required

Appendix E > Scenarios 33 With the shared policy allocation: Rose Jones 8962 page 1: Contribution amount remains the same Reflecting 75% of the amount reported on the 1095-A Premium amount is now 750, not the 1,000 that was reported on the 1095-A Additional tax credit is reduced; it is now 954 vs 2,064

Appendix E > Scenarios 34 Rose Jones 8962 page 2: When the shared policy allocation applies, Part 4 of the 8962 must be completed The SSN of the person sharing the policy must be included The percent that will be multiplied by the original amounts reported on the 1095-A

Appendix E > Scenarios 35 James s 8962 with his allocation of 25%: The 8962 is calculated based on James s household income and the allocation percent reported on Part 4 of Form 8962. In this case, James will be responsible for paying back the overpayment of the advanced credit. James s 8962 page 1: Contribution amount is based on James income Reflects 25% of the amount reported on the 1095-A 25% of advance payment James is responsible for paying back the overpayment of the credit 438

Appendix E > Scenarios 36 James s 8962 page 2: SSN of Rose Jones James allocation amount

Appendix F > Online Resources 37 General Information Health Coverage and Taxes - Healthcare.gov/Taxes DrakeHealth DrakeHealth.com Publication 5187 Health Care: What s New for Individuals and Families Publication 5093 Health Care Law Online Resources Publication 17 Your Federal Income Tax (For Individuals) Premium Tax Credit Q & A on the Premium Tax Credit Return Preparer Best Practices Premium Tax Credit Publication 5152 Premium Tax Credit Report Changes in Circumstances Publication 5120 Facts About the Premium Tax Credit (1) Publication 5121 Facts About the Premium Tax Credit (2) Individual Shared Responsibility Payment and Coverage Exemptions IRS.gov Individual Shared Responsibility Provision IRS.gov Calculating the ISRP Payment Return Preparer Best Practices ISRP Publication 5156 Facts About the Individual Shared Responsibility Provision Publication 5185 Facts About Making a Shared Responsibility Payment Publication 5172 Facts About Health Coverage Exemptions Find 2014 Bronze Plan Premium Healthcare.gov Find 2014 Silver Plan Premium Healthcare.gov Employer Shared Responsibility Provision Q & A on Employer Shared Responsibility Provision Copyright Drake Software