All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

Reply
Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Health Insurance Reminders & 2016 Updates

[ Edited ]

Hi everyone,

 

Last tax season there were still a lot of issues and a lot of confusion with the tax aspects of the new health insurance law.  At my office and I'm sure across the board there were a number of people who had to wait an extra month or more for their refund because of one thing or another, and there were several people who weren't aware of the forms that they were required to include with their tax return.  There were also several questions in the community regarding new marriages and shared policies.

 

So I've put together a bunch of pointers to help you to be better prepared for tax season 2017.  I've been helping people through tax-related health insurance issues since the new law began and am an expert in this area, so if you have any questions regarding health insurance please ask me.

 

THE PREMIUM TAX CREDIT

The premium tax credit is a tax credit that you receive in advance to help pay for you insurance.  How much you receive is determined based on income and family size at the time you open your marketplace account.  It is your responsibility to update the marketplace of changes.  The credit is paid to the company that insures you when you purchase your premium, so for example you may end up paying $50 per month for a policy that actually costs $400 per month.

 

The amount of premium tax credit that you were actually eligible to receive for the year is determined at tax time using Form 8962, and:

  • If you received too much credit then you have to pay some of it back through your tax refund, although the amount you have to repay may be limited based on your income.
  • If you received too little credit then you'll receive additional credit in the form of refundable credit on your tax return.  If you overestimated your income to the marketplace then you should get additional credit.

 

A FEW REMINDERS

  • Form 1095-A & Form 8962 are both required if you have health insurance through the marketplace.  DO NOT file your tax return without these forms as you will receive a letter from the IRS and your refund will be significantly delayed.

 

  • If you are covered through work make sure that you know where your employer-sponsored insurance is coming from.  Some employers are insuring through the marketplace which means you have insurance through the marketplace and you will receive a Form 1095-A.  I have actually seen this with a couple of clients earlier this year.

 

  • If you were recently married or shared a policy with someone who is not on your tax return don't flip out when you see your initial results on Form 8962, there are special calculations for both of these scenarios.  An H&R Block tax professional can be of great assistance if you do not understand how to figure your Form 8962 correctly.

 

  • If you have insurance through work or a private insurer you will receive either Form 1095-B or Form 1095-C.  Be sure that you include these forms on your tax return.  They serve as proof of insurance among other things.

 

  • If you have insurance through the marketplace, report changes in your income to the marketplace, especially if you have your account set to auto-enroll for the next year.  This will prevent you from having to repay a large amount of premium tax credit because of your income being underestimated, and it will also prevent you from not getting enough credit in advance because of income being overestimated.

 

  • If you did not have health insurance make sure that you claim an exemption on Form 8965.  If you're not sure if you're eligible then please visit a tax professional at your local H&R Block office for assistance.

 

WHAT'S NEW

  • Forms 1095-B & 1095-C are required starting with tax season 2017.  If you receive insurance through a private policy or through work (non-marketplace) then be on the lookout for one of these forms.  Either a Form 1095-B or a Form 1095-C MUST accompany your tax return if you do not have marketplace insurance.

 

  • The penalty for not having insurance has increased to $695 per person (maximized at $2,085) or 2.5% of all of your income over $10,000, whichever is greater.  The penalty will be increased for inflation each year from 2017 onward for as long as the law exists.  Make sure that you have health insurance!

 

EXEMPTIONS

If you do not have health insurance, make sure that you fill out Form 8965 and claim any exemption that you qualify for to avoid paying part or all of the penalty.  You an find a full list of the exemptions that are available here.

 

Some of the exemptions that can be claimed without a marketplace exemption code are:

  • Short-term Coverage Gap (exempts you for the months of January & February when you have an unavoidable delay in purchasing your premium through the marketplace).
  • No Filing Requirement (you are exempt if your income is below the federal filing requirement).
  • Cost Above 8% of Income (you are exempt if your lowest-cost insurance plan option, or your lowest-cost silver plan through the marketplace, would cost more than 8% of your tax family's total income).
  • In the U.S. Illegally (you are exempt if you are not a U.S. citizen or a resident alien, or if you are in the country illegally).

 

 

I will update this as more information becomes available.  Again, if anyone has any health insurance questions please ask so that you can be prepared for the 2017 tax season.

Pioneer
Posts: 1
Registered: ‎10-26-2016

Re: Health Isurance Reminders & 2016 Updates

Louis, thanks for the very informative post. I'm having a hard time trying to figure out why I'm not taxed post-health insurance premiums since I have a private plan. When I had a Blue Cross plan from a past employer, my income taxes were taken out AFTER those payments. Now I have a private plan with Blue Cross and am paying full taxes on my income, where before it would have been based on my income minus $5400 (monthly premium x 12). I can see it being different if I got a credit or subsidy, but I don't qualify. Below you mentioned that employers are offering their employees health insurance from the marketplace, am I to assume that since their premiums still come from their payroll checks that their income taxes are taken out AFTER the premium is deducted? For what it's worth, I am a contingent employee on W2 with no benefits.
Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Health Isurance Reminders & 2016 Updates

Hi wendt27,

 

Welcome to the community.

 

You're welcome.

 

If your employer provides your health insurance benefits (meaning the employer pays the premiums out of their own pocket) then it's a non-taxable benefit and you won't pay tax on it, although you may see it listed on your paycheck stub.

 

On the other hand, if your emplyer does not pay for your health insurance premium then the cost of the premium is income to you.  What happens in this scenario is that the employer pays for your premium by deducting the cost from your pay, so your take home paycheck won't include the amount deducted from it for the premium but cost of the premium will be included in your taxable income.

 

Perhaps your employer switched the way they handle insurance benefits so that they no longer foot the bill.

 

Since the cost of the premiums is coming out of your paycheck and you are paying tax on it you can deduct the cost of the premiums on Schedule A (if you itemize your deductions).

 

It is true that the insurance that some employers are offering is obtained through the marketplace (whether or not the employee knows that).  I've actually had a couple of clients who didn't have a clue that had marketplace insurance through work, but on the bright side everything turned out great for them with their tax returns.  In any case, the cost of the premiums that comes out of an employee's paycheck is taxable unless the employer pays for the premium.

 

I do hope this helps you out.

 

Louis

Senior Tax Advisor (Tampa, FL)

Pioneer
Posts: 1
Registered: ‎10-31-2016

Re: Health Isurance Reminders & 2016 Updates

Hello, this year I've had insurance through my employer but recently changed jobs and had to get the healthy Indiana plan would that be considered the market place
Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Health Isurance Reminders & 2016 Updates

Hi basketball_girl,

 

Welcome to the community.

 

The healthy Indiana coverage is state-sponsored health insurance.

 

In Indiana, as stated on Indiana's health insurance website, although a healthy Indiana plan may be available to you through the marketplace you still have to go through the federal health insurance marketplace website to take advantage of marketplace insurance.  If you didn't go through the federal marketplace then it won't be a marketplace plan.

 

You can find marketplace insurance at www.healthcare.gov.

 

I do hope this helps you out & I'll be here if you have any other questions.

 

Louis,

Senior Tax Advisor (Tampa, FL)

Associate (Neighbor)
Posts: 36
Registered: ‎10-31-2013

Re: Health Insurance Reminders & 2016 Updates

[ Edited ]

You do not have to wait for the 1095-B and 1095-C although it may be advisable to do so.  But if you are a marketplace customer, the 1095-A is still mandatory for filing lest your return go on hold at the IRS.

 

From the Instructions  for Form 1040:

 

If you or someone in your family had health coverage in 2016, the provider of that coverage is required to send you
a Form 1095-A, 1095-B, or 1095-C (with Part III completed), that lists individuals in your family who were enrolled
in the coverage and shows their months of coverage. You may use this information to help complete line 61. You
should receive the Form 1095-A by early February 2017 and Form 1095-B or 1095-C by early March 2017, if
applicable. You do not need to wait to receive your Form 1095-B or 1095-C to file your return. You may rely on
other information about your coverage to complete line 61. Do not include Form 1095-A, Form 1095-B, or Form
1095-C with your tax return. [emphasis added]

 

It would appear that since employers were given another year of delayed reporting for the -B and -C flavors, so was the taxpayer relieved from having to wait for that form.  However, we should caution our clients that if the data shown on the 1095s conflict with what was filed, they might receive a love letter from the IRS at a later date.

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Health Insurance Reminders & 2016 Updates

Hi everyone,

 

PhilW2 is correct that you do not need to wait for Forms 1095-B and/or 1095-C to file a tax return for 2017.  This went into effect in late November with the passing of IRS Notice 2016-70 which eliminated the requirement to attach these forms to your tax returns due to the deadline for employers and insurance companies to distribute them to you being extended through March 1st.

 

Keep in mind that you MUST attach Form 1095-A and Form 8962 to your tax return if you had insurance through the marketplace.  Forms 1095-A will be distributed in early February and are usually available in your online marketplace account if you lose your paper copy that you received in the mail.

 

As always, if you have any health insurance questions please ask!

 

Louis

Trusted Pioneer
Posts: 5
Registered: ‎01-19-2016

Re: Health Insurance Reminders & 2016 Updates

Hi Louis,

 

I'm wondering if I can file my federal taxes online for free or should pay $29.99 for the basic software.  My finances are simple but I had an HSA for 2015 and an FSA for 2016.  The full details are listed below: 

 

For 2015 I opened an HSA through my empoloyer.  For 2016 I chose an FSA through my employer.  For 2016 I only made contributions to the FSA and not the HSA, however I did have one distribution of $242 from my HSA on Jan 4 2016 which leaves my HSA balance at $0.48.  I'm assuming my HSA bank will send a 1099-SA and 5498-SA for 2016.  I will also recieve a 1095-C for having health insurance through my employer that was not from the marketplace.  Will I be able to portray this information through the free online format?

 

Thanks,

 

Mike

Highlighted
Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Health Insurance Reminders & 2016 Updates

Hi Mike,

 

You will need basic at the very least.  When you have health savings accouts, etc. a Form 8889 is required and that is not covered in the free file version.  Free file does 1040EZ returns.

 

You can file a 1040A (basic software) for free online this year but if you use the desktop software then yes you would need to pay the $39.99 for the download.

 

Always glad to be of help.

 

Louis