The Affordable Care Act and the Income Tax By Greg Martinez December 2013
Overview Health insurance mandate Individual Shared Responsibility Provision Exemptions Minimum essential coverage Penalties Covered CA Subsidies Premium assistance tax credit Cost sharing reductions Certified Enrollment Entities Certified Enrollment Counselors IRC 7216 Enrollment periods
Health Insurance Mandate (Individual Shared Responsibility Provision) Beginning 1/1/2014, all Americans must have health insurance Those who don t will pay a penalty called shared responsibility Some people are exempt from the mandate IRS regulation 2013-21157
People exempt from mandate Below income tax filing threshold MFJ - $20,300 Single, MFS - $10,150 HOH - $13,050 Cannot afford coverage Insurance costs over 8% after tax credit & employer contribution Religious reasons for not purchasing coverage Facing a hardship Members of an Indian tribe Incarcerated 3 month coverage gap
3 month coverage gap A 3 consecutive month coverage gap is allowed for purposes of calculating the penalty for not having insurance. Having insurance for at least one day during the month qualifies as having insurance for the whole month Only one three month gap allowed per year
3 month coverage gap Example: Maria buys insurance through Covered California on March 15 th 2014. It goes into effect on April 1, 2014. As long as she continues with the coverage through 12/31/13 she will not have to pay the penalty for not having insurance.
Minimum Essential Coverage Examples Most employer-sponsored coverage. Most coverage purchased in the individual market, including via a Marketplace Medi-Cal Certain types of veterans coverage (e.g. TRICARE) Medicare Foreign health coverage Self-funded student health insurance plans Refugee medical assistance AmeriCorps coverage offered to AmeriCorps volunteers, which is a domestic counterpart to the Peace Corps According to their website, SIMNSA provides minimum essential coverage
Penalties (shared responsibility) Year Percentage of family income above the tax filing threshold 2014 1% 2015 2% Pay the greater of Set dollar amount $95 per adult and $47.50 per child (up to $285 for a family) $325 per adult and $162.50 per child (up to $975 for a family) 2016 and $695 per adult and $347.50 per child (up to beyond 2.5% $2,085 for a family) Note: The total penalty for the taxable year will not exceed the national average of the annual premiums of a bronze-level health insurance plan offered through the health insurance marketplaces.
Penalty example Single AGI - $50,000 Filing threshold - $10,150 Penalty is $399 (greater of $95 or 1% of $39,850) MFJ AGI - $100,000 Filing threshold - $20,300 Penalty is - $797 Greater of $190 or 1% of $79,700 IRS will not file a lien or levy for failure to pay the penalty
Premium assistance & cost-sharing reductions Must purchase health insurance through an exchange (e.g. Covered CA) Modified AGI must be under 400% of federal poverty level Must be a citizen or legal resident Must not have been offered affordable health insurance Not over 8% of household income for self-only coverage or 9% for family coverage Is not enrolled in employer plan, affordable or not Not eligible for medi-cal IRS Regulation 2012-12421
Federal Poverty Level Chart Household Size 100% 133% 138% 150% 200% 300% 400% 1 $11,490 $15,282 $15,856 $17,235 $22,980 $34,470 $45,960 2 15,510 20,628 $21,404 23,265 31,020 46,530 62,040 3 19,530 25,975 $26,951 29,295 39,060 58,590 78,120 4 23,550 31,322 $32,499 35,325 47,100 70,650 94,200 5 27,570 36,668 $38,047 41,355 55,140 82,710 110,280 For each additional person, add $4,020 $5,347 $5,548 $6,030 $8,040 $12,060 $16,080 Modified AGI is AGI plus the foreign income exclusion, nontaxable social security benefits, and tax exempt interest
Premium assistance Assistance can be received as an advance which goes straight to the insurance companies. It can also be received as a credit on your 2014 and subsequent years tax returns Excess premium assistance received must be paid with your tax return beginning in 2014. Must file by April 15th
Cost-sharing reductions Cost-sharing reductions are applied to the amount of copayment or deductible for an insurance policy purchased through an exchange like Covered California Must purchase a Silver plan to qualify for cost sharing reductions Household Income (as percentage of Federal Poverty Line (FPL) Net Value of the Subsidy (% of Actuarial Value)Outof-Pocket Liability 100-150% 94% 150-200% 87% 200-250% 73% 250-400% 70%
Certified enrollment entities Certified enrollment entities are entities and organizations that are eligible to be trained and registered to provide in-person assistance to consumers and help them apply for Covered California health plans. Certified enrollment entities receive $58 for each successful Covered CA plan sold by any of their certified enrollment counselors No fee for Medi-cal enrollment
Certified enrollment counselors Certified enrollment counselors are trained individuals who are available to provide in-person counseling and assistance to consumers in need of help with applying for Covered California programs. Counselors will provide assistance in culturally and linguistic appropriate manners to consumers throughout California. Counselors can only assist people purchasing insurance, not recommend any policy or insurance agent
Taxpayer Consent to use tax information - IRC 7216 Tax preparers who provide services and education related to the ACA will be required to receive consent from taxpayers before using their tax return information to solicit and facilitate client enrollment in health insurance available through the new health insurance marketplaces. Consent not required to use contact information to provide clients general educational information about the Affordable Care Act and health insurance available through the new health insurance marketplaces
When to enroll Initial enrollment October 1, 2013 to March 31, 2014 Annual enrollment October 15 to December 7 Special enrollment
Special enrollment periods A qualified individual or dependent loses Minimum Essential Coverage (MEC) A qualified individual gains a dependent or becomes a dependent through marriage, birth, adoption or placement for adoption; An individual who was not previously a citizen, a national or a lawfully present individual gains such status A qualified individual s enrollment or non-enrollment in a Covered California Health Plan is unintentional, inadvertent or erroneous The Covered California Health Plan in which substantially violated a material provision of its contract in relation to the enrollee; An individual is determined newly eligible or newly ineligible for premium assistance or has a change in eligibility for CSR, regardless of whether the individual is already enrolled in a Covered California Health Plan; An individual whose existing coverage through an eligible employer-sponsored plan will no longer be affordable or provide minimum value; and A qualified individual or enrollee gains access to Covered California Health Plans as a result of a permanent move.
Conclusion As a CPA and licensed health insurance agent, I will be happy to help you out Greg Martinez, CPA 619-302-0629 Health insurance will be a big issue this tax season and next. Lots of questions this year about health insurance Lots of questions next year about the health insurance related forms on your tax return