Health Care

Health Care

How do health care reform and taxes connect? The Affordable Care Act is single largest change to the tax code in two decades. Find help navigating the complexities of the new health care legislation, Medicare, Medicaid and other medical deductions.

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Trusted Pioneer
Posts: 7
Registered: ‎04-17-2018

ACA Penalty

I had insurance that met ACA requirements for all of 2017, EXCEPT for the month of December. I filled out my taxes, but did not file, on TurboTax and they said it was waived. I went to H&R Block for a second look and the accountant said I would have to pay a penalty, but when she entered it in the computer, it said the penalty was waived. I entered my taxes into CreditKarma, and they said I owed the penalty of around $96. Can anyone explain this?? 

Trusted Pioneer
Posts: 7
Registered: ‎04-17-2018

Re: ACA Penalty

[ Edited ]

One more thing, I had an individual plan that was not through my employer....if that makes a difference. The real kicker is that I paid my premiums out of pocket after taxes, so it did not lower my taxable income. I can't believe I can't claim this. I think it is ridiculous that you have to pay pre-tax with an employer plan to reap the benefits, and there is no way to claim this.

Trusted Pioneer
Posts: 7
Registered: ‎04-17-2018

Re: ACA Penalty

UPDATE...I found this on IRS Interactive Tax Assistant:

You are not liable for the Shared Responsibility Payment.
 
When each member of your tax household has minimum essential coverage and/or meets an exemption for each month of the tax year you are not liable for the payment.

If you are required to file federal tax Form 1040, 1040A or 1040EZ complete Part III of Form 8965, Health Coverage Exemptions, to indicate the exemption(s) you qualify for and submit the Form 8965 with your tax return.

An exemption applies to the months that a person was:
  • Without coverage for less than three consecutive months (Short coverage gap)
Council Member
Posts: 548
Registered: ‎04-06-2016

Re: ACA Penalty

Yes, That's exactly what I was going to comment about.  With a one month gap in coverage, you qualify for an exemption for a short gap in coverage that H&R Block will automatically enter for you.  The exemption covers gaps of UNDER 3 months-- which means you can have 2 full months without insurance without have to pay the penalty for those months (but only once per year).  Any month in which you have coverage for even one day counts as a month you had coverage.

 

Also, you should be aware that since your gap occurred in December, that it will be included in your eligibility for the short gap exclusion in 2018. Basically if you continue to not have insurance for Jan and Feb 2018, you won't qualify for the exclusion for 2018 because your total continuous gap (including Dec) would be 3 months.

 

Regarding being able to deduct your medical premiums, you can as an itemized deduction as a medical expense.  However, the amount of your total medical expenses that are allowed as an itemized deduction is limited to the amount of the expense over 7.5% of your AGI.  (You'd enter the entire amount in the software and it'll calculate the deductible part for you.)  You'll only benefit from this if your total itemized deductions are larger than your standard deduction though.

 

Karen

Trusted Pioneer
Posts: 7
Registered: ‎04-17-2018

Re: ACA Penalty

Karen, thanks for the response. I'm not sure why Credit Karma Tax wouldn't recognize the exemption. Since it wouldn't recognize the exemption, I chose that I was waiting for an ECN#, which removed the penalty. I filed it this way...but now I think I need to amend.

 

Itemizing my insurance premiums is not the same as paying my premiums pre-tax and lowering my taxable income. I don't see why I can't deduct my insurance premiums from my gross wages, and then figure my AGI. I don't know why an employer has to be involved. 

 

I also read that if you are self employed you can pay your premiums pre-tax. I wondered if I could somehow claim I'm employed AND self employed. 

 

 

Council Member
Posts: 548
Registered: ‎04-06-2016

Re: ACA Penalty

I'm going to reply in blue text below...
@Chris5446 wrote:

Karen, thanks for the response. I'm not sure why Credit Karma Tax wouldn't recognize the exemption. Since it wouldn't recognize the exemption, I chose that I was waiting for an ECN#, which removed the penalty. I filed it this way...but now I think I need to amend. Yes, you should amend your return, the code for the Short Coverage Gap exemption is B. This will show up on Form 8965. If you don't amend the return, you're likely to get a letter from the IRS asking for your ECN or for the penalty. It'll be much better to get ahead of it and fix the return.  Your 1040X will basically show no changes, but you'll want to include a revised Form 8965 and an explanation of the changes you're making. 

 

Itemizing my insurance premiums is not the same as paying my premiums pre-tax and lowering my taxable income. You're absolutely correct. It doesn't have the same effect-- not by a long shot for most people.  I don't see why I can't deduct my insurance premiums from my gross wages, and then figure my AGI. You can't do this because the tax law doesn't allow it. It allows you to deduct insurance premiums as an itemized deduction, but only as an adjustment to income if you're self-employed.  I wouldn't suggest trying to do what you're talking about, the IRS gets a copy of your W-2s, will know that you're not reporting all of your income, and will come asking about it. (Since this is all automated, I don't know that there's even a person involved in this process.) I don't know why an employer has to be involved.  

 

I also read that if you are self employed you can pay your premiums pre-tax. This is true. If you're self employed, you can take an adjustment to income on the front page of your return that will deduct the amount of your premiums from your AGI (making them pre-tax). However, the amount you can deduct is limited to the net profit of your self-employed business.  I wondered if I could somehow claim I'm employed AND self employed. Only if you have self-employment income and employee income. You could ask your employer if they'd hire you as an independent contractor. But if they did you'd lose any benefits you're offered through the company and you'd be responsible for paying quarterly estimated taxes on your income and paying the employer half of SS and Medicare taxes (7.65% of net SE income) in addition to the employee part that your employer withholds for you (another 7.65%). You'd have to pay these directly to the IRS since you would be your own employer.  If you wanted to maintain your current job, you could start another business on the side. As long as that self-employment business made enough profit to cover your insurance premiums you could deduct them from your income. (But then you'd have to report your SE business income as well.)

 

Karen

 

 


 

Trusted Pioneer
Posts: 7
Registered: ‎04-17-2018

Re: ACA Penalty

I don't see why I can't deduct my insurance premiums from my gross wages, and then figure my AGI. You can't do this because the tax law doesn't allow it. I'm sure there are lots of tax laws that don't make sense. My employer can subtract my health insurance premiums from my taxable income but I can't. This little tid-bit of information cost me $1,000 this year. Not to mention the ridiculous cost for health insurance. I'm not ranting at you, just in general. 

 

As long as that self-employment business made enough profit to cover your insurance premiums you could deduct them from your income. (But then you'd have to report your SE business income as well.) I can't report zero income from a SE business? Does the source of money to pay my insurance matter? 

Council Member
Posts: 548
Registered: ‎04-06-2016

Re: ACA Penalty


@Chris5446 wrote:

I don't see why I can't deduct my insurance premiums from my gross wages, and then figure my AGI. You can't do this because the tax law doesn't allow it. I'm sure there are lots of tax laws that don't make sense. My employer can subtract my health insurance premiums from my taxable income but I can't. This little tid-bit of information cost me $1,000 this year. Not to mention the ridiculous cost for health insurance. I'm not ranting at you, just in general. I completely understand. 

 

As long as that self-employment business made enough profit to cover your insurance premiums you could deduct them from your income. (But then you'd have to report your SE business income as well.) I can't report zero income from a SE business? Does the source of money to pay my insurance matter? You can report zero income from a SE business, but if you did you couldn't deduct the insurance premiums from your income. 

 

Actually, I was just looking up the conditions to claim the SEHI deduction (pp 32-33) in the 1040 instructions: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf , and saw this:

"But if you also were eligible to participate in any subsidized health plan maintained by your or your spouse's employer for any month or part of a month in 2017, amounts paid for health insurance coverage for that month can't be used to figure the deduction. Also, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2017, don’t use amounts paid for coverage for that month to figure the deduction." 

So if you were eligible for coverage through your employer and chose not to take it and instead purchased insurance from your SE business, it wouldn't be deductible anyway.

 

Karen


 

Trusted Pioneer
Posts: 7
Registered: ‎04-17-2018

Re: ACA Penalty

Karen, you've been very helpful. In conclusion, there are no tax breaks for a single, middle aged, born and raised American male, with no kids, that works 40 hours a week, and makes more than $20K and less than $80K and does not have any health issues. 

Council Member
Posts: 548
Registered: ‎04-06-2016

Re: ACA Penalty

You are getting the same tax break that everyone else in your situation is. It has absolutely NOTHING to do with the fact that you're a middle-aged, born and raised American male that works 40 hrs a week.  It does have to do with the fact that you're single with no kids, you make more than $20K and less than $80K, and don't have any health issues. Are you really complaining about the fact that you're making a reasonable amount of money for a single person with no kids and that you're healthy? 

 

You're conclusion that there are no tax breaks for someone in your situation is false.  Every taxpayer gets either an itemized or standard deduction and an exemption. (Although the recent Dec tax changes will likely benefit you as a single person since you'll miss the loss of your exemption (that was eliminated by the new law) less than a couple or family will.) If you're not sick or have other itemized deductible expenses, you still get the standard deduction.  

 

Moreover, you can contribute to a 401(k) if your employer offers one, or, because you have earned income, you can contribute to a Traditional or Roth IRA.  Any contributions you make to a 401(k) plan reduces your taxable income. If you're not offered a retirement plan at work your Trad-IRA contributions would be deductible.  Even if you to have a retirement plan at work, your contributions to a Traditional IRA are deductible if your AGI is under $62k, and partially deductible if it's between $62-72k.  You're also eligible to contribute to a Roth IRA (with AGI<$133,000), that, while not deductible now, is tax-advantaged when you withdraw the money for retirement or in other special cases because the increase in value/earnings will not be taxed.  

 

Did you choose to opt out of your employer's coverage or did your employer not offer health insurance. If your employer didn't offer coverage, and your income was less than about $48,000 you would have been eligible for health insurance premium subsidies that would have reduced your out-of-pocket cost for your health insurance premiums.  If you made more than that, you would likely have been in the subsidy-cliff situation, but would likely have been eligible for an affordability hardship exemption. 

 

Yes, if you had a dependent you might qualify for a credit for dependent and child care expenses that you have to pay for in order to work.  But, you're not paying those expenses. 

 

Yes, if you were low income, you might qualify for earned income tax credit. But, you're not-- you're making between 20-80k.  

 

Yes, if you had the expenses and risk of being a self-employed person and had to pay the extra 7.65% of your income as the employer part of social security and medicare tax instead of having your employer pay it, you'd be eligible for the SEHI deduction. But, you're not. You have an employer and a 40-hr/week full time job.  

 

So, if you're asking if there's a special tax break available to you just for being a middle-aged, born and raised American male that works 40 hours a week making more than $20K and less than $80K, then NO, you get to be treated just like everyone else with your filing status and income.

 

Karen