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.
11-09-2017 02:13 PM
Hi H&R Block community!
As many of you may know, I am an expert on the ACA tax provisions, having helped people with all kinds of ACA issues from the very beginning. I have been watching everything that's been going on in congress with regards to tax & health care closely this year and check with the IRS for updates on & changes to the ACA regularly. With that said, I have a bunch of information for you on the future of the ACA and what you can expect on your next couple of tax returns.
PREMIUM TAX CREDIT
The PTC is still available for tax years 2017 and 2018 and Form 8962 works the same way that it has for the past few years. You are eligible for the premium tax credit if your income is within 400% of the federal poverty line for your family size. You can receive the PTC in advance when you enroll in an insurance policy, however make sure that you estimate your expected income as accurately as possible. When you reconcile your premium tax credit on Form 8962 at tax time you will either get additional credit or you will have to repay some of what you've already received in advance. You could also break even although that is fairly rare since any number of things could happen over the course of a year that can affect your total income for the year. If your income is less than you estimated then you will get additional credit, but if you make more income than you estimated you will have to repay some of the credit you received. If your income ends up being in excess of 400% of the federal poverty level for your family size then you will have to repay 100% of the credit that you received in advance.
THE "PENALY" FOR NOT HAVING INSURANCE
If you do not have insurance and you do not qualify for an exemption then you will owe a shared responsibility payment, or a penalty as it is more commonly referred to, with your tax return. The penalty for 2017 is the greater of:
For example, if your income is $50,000 you are a head of household with 1 child then your filing threshold is $13,400. This means that 2.5% of $36,600, your income in excess of your filing threshold, is $915. The dollar amount penalty is $1,042.50. So your penalty is the dollar amount penalty of $1,042.50.
The penalty is reduced for each month that you had insurance, so you only pay for those months for which you did not. So if the facts are the same as in the above example but you and your child both had insurance for six months out of the year then your penalty is $521.25 instead of the full $1,042.50.
It is true that on January 20th, 2017 an executive order was signed by president Trump instructing federal agencies to reduce the burden of the ACA. As a result many taxpayers got away without paying a penalty last year. However, Congress never changed the law and to date neither a new health law or an amendment to the existing law has been passed. The IRS has since stated that it take enforcement of the ACA shared responsibility provision to a new level starting with 2017 returns. Specifically the IRS says it will automatically reject any tax return that does not specify whether or not the taxpayer had insurance for the entire year and/or claim and exemption on Form 8965. The following paragraph is an excerpt from an IRS update.
"For Tax Year 2017, the IRS will not consider a return complete and accurate if the taxpayer does not report full-year coverage, claim a coverage exemption, or report a shared responsibility payment on the tax return. Most taxpayers have qualifying health coverage for all 12 months in the year, and will check the "Full-year coverage" box on their tax return. Taxpayers who do not have full-year coverage will indicate whether they qualify for a coverage exemption or owe a shared responsibility payment.
Executive Order 13765 was issued on January 20, 2017, and directed federal agencies to exercise authority and discretion available to them to reduce potential burden. However, legislative provisions of the ACA are still in force until changed by the Congress, and taxpayers remain obligated to follow the law and pay what they may owe. Taxpayers should continue to file their tax returns as they normally would." - IRS
WHAT HAPPENS AFTER 2017?
For tax year 2017 all provisions of the ACA stand, so you'll still be able to get the premium tax credit and you'll still have to pay the penalty if you don't have insurance. For tax year 2018 the premium tax credit is available and you will still have to fill out Form 8962 with your 2018 tax return as usual if you receive it. Because no health care law has been passed, the penalty provisions will also apply to 2018 returns. In addition, it is possible that in 2018 the penalty will be increased for inflation since it was not increased for tax year 2017. If an amendment or a bill to repeal the healthcare law that changes the penalty is passed during 2018 then, although it is possible that some things could change for 2018 returns depending on how any such legislation is written, the changes will more than likely take affect for tax year 2019 and will be reflected on 2019 tax returns.
GET INSURANCE NOW!
Among the biggest changes to the ACA this year is the open enrollment period for marketplace insurance. Make sure that you get insurance now if you don't already have it because unlike in years past you have until December 15th this time around to enroll in marketplace insurance plans. In previous years you had all the way through February to enroll in a policy.
There is an alternative to marketplace insurance that may be less expensive if you are under age 30. For those of you who are age 30 or younger, a high-deductible health plan counts as minimum essential coverage so long as it offers at least 3 primary care visits and preventative care without the use of the deductible. If you enroll in a high-deductible health plan you can also take advantage of a health savings account which allows you to set money aside for health expenses tax-free. Funds in an HSA remain tax-free so long as they are used for medical expenses when they are withdrawn.
During the tax season and in the months following I often see quite a few ACA questions on the community boards. If you have an ACA situation that you aren't sure what to do with don't wait until it's too late. Instead, ask me about it. For those of you who have general questions, those who have situations where you have multiple people on an ACA insurance plan (shared policy allocation), those of you who were married during 2017 (year of marriage calculation), and those of you who just aren't sure how to calculate Form 8962, in addition to posting your questions on the community boards you also can click on my name which will allow you to send me a private message to request assistance with your Form 8962 and get answers much faster since I will see your question at least one way if I don't see it the other way.
Senior Tax Advisor (Tampa, FL)
12-27-2017 11:09 PM
UPDATE: HEALTH INSURANCE PENALTY
With the passing of the final tax bill the penalty for not having insurance was repealed. Or was it?
The penalty (individual mandate) will remain intact and in full force for tax years 2017 AND 2018. It will be gone when you file your 2019 tax return in 2020. In other words, the penalty was repealed, but this provision of the new tax law does not go into effect until January 1st, 2019.
Make sure you have health insurance. Also, check out the previous post on this thread for the penalty amounts & exemption information for your 2017 tax return.
I have seen a few other posts from our moderators regarding the tax law. I would be sure to read those as well because there are a lot of changes coming in the next year.
01-04-2018 08:41 PM
Correct. If you or someone else on your tax return didn't have insurance for 2017 you will have to pay a tax penalty of up to $695 per person in your tax family who didn't have insurance ($347.50 for each child age 18 and under) or 2.5% of your taxable income, whichever is greater. The penalty either reduces your refund or it results in a tax amount due if your refund isn't enough to cover it.
There are plenty of exemptions available to you though, so you may not have to pay the maximum amount, or you may not have to pay anything at all if you're eligible for an exemption that covers the entire year. Exemptions are claimed on Form 8965.
If you can tell me what your income is, if you have any dependents and whether or not they had insurance, and which state you live in, I'll help you figure out if you qualify for an exemption and/or how much of a penalty you're looking at.
Senior Tax Advisor (Tampa, FL)
01-06-2018 02:35 PM
Alright. So the first exemption we look at in Florida is the non-expansion of Medicaid exemption, or exemption G. If your income is below 138% of the federal poverty level then you're exempt from the penalty for the entire year. So if your income is $16,394 or less you'll qualify for this exemption. It's granted instantly on Form 8965 by entering code "G".
The next one is that if your lowest cost insurance premium would cost more than 8.16% of your income then you are exempt from the penalty for the entire year. This is the unaffordability exemption, or exemption "A". So, based on a person who is 35 years of age and living in Florida, the lowest cost plan per the marketplace is $2,472. This may be a little higher or a little lower depending on your actual age but the figure is ballpark. 8.16% of your income (assuming $19,800 for the year since you said you'll earn just under $20) is $1,616 so you will definitely be eligible for exemption "G" based on the information provided even if your lowest cost marketplace plan varies by a few dollars when calculated with your actual age.
You should fill out Form 8965 by entering your information and exemption code "G" in the bottom section of the form. This will waive the penalty in its entirety instantly. Of course you'll want to visit www.healthcare.gov/tax-tool to calculate your lowest cost plan using your actual age and location, but as I said before, even though there will probably be a small difference from the figure I came up with you will still qualify for the exemption.