Health Care Law & Your Tax Return
- Priscilla Wolfe
- Nov 29, 2022
- 2 min read
Updated: Jan 16
Health Care Law & Your Tax Return
The Affordable Care Act (ACA), also known as Obamacare, has a significant impact on how individuals and families file their tax returns. If you’re wondering how the ACA affects your taxes and what steps you need to take to stay compliant, this guide will help you navigate the key points.
1. The Individual Mandate
The ACA originally required most Americans to have qualifying health insurance coverage or pay a penalty, known as the Individual Shared Responsibility Payment. However, starting in 2019, the federal penalty was reduced to $0. Some states, including California, Massachusetts, and New Jersey, have their own mandates and penalties for not having coverage, so check your state’s requirements when filing your tax return.
2. Premium Tax Credits
If you purchase health insurance through the Health Insurance Marketplace, you may qualify for a premium tax credit. This credit helps lower your monthly insurance premiums based on your household income and size. The amount of the credit you’re eligible for is reconciled when you file your tax return:
If you received too much advance credit, you’ll need to repay the excess.
If you received less than you were entitled to, you’ll get the difference as part of your refund or a reduction in the amount you owe.
3. Form 1095-A
Taxpayers who purchase insurance through the Marketplace will receive Form 1095-A, which provides information about your coverage, the amount of premiums paid, and any advance payments of the premium tax credit. Ensure the details on this form are accurate and use it to complete Form 8962, which calculates your premium tax credit.
4. Employer-Provided Coverage
If you have health insurance through your employer, you may receive Form 1095-B or 1095-C. These forms provide information about your coverage but are not required to file your tax return. Keep them for your records in case the IRS requests proof of coverage.
5. Self-Employed Individuals
Self-employed individuals can deduct health insurance premiums directly on their tax return. This deduction reduces your taxable income and is available even if you don’t itemize deductions. If you’re also eligible for a premium tax credit, make sure to coordinate these benefits correctly to avoid errors.
6. Shared Responsibility for Employers
Employers with 50 or more full-time employees are required to offer affordable health insurance to their workers under the ACA’s Employer Shared Responsibility Provisions. While this doesn’t directly affect individual tax returns, employees should verify their W-2 reflects any pre-tax health insurance contributions accurately.
Tips for Filing Your Tax Return:
Double-check all ACA-related forms, including 1095-A, 1095-B, and 1095-C.
Use Form 8962 to reconcile your premium tax credit.
Be aware of state-level mandates if you live in a state with its own health insurance requirements.
The Affordable Care Act may add complexity to your tax return, but understanding its implications can help you avoid surprises and ensure compliance. If you need assistance navigating ACA-related tax issues, consult a tax professional or reach out to our team at BookkeepingBusinessOnline.com. We’re here to make your tax season stress-free.
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