Obamacare has made Mark Steber eager for this tax season.
“It’s a very exciting time for tax nerds and geeks in the industry,” said Steber, chief tax officer at the tax preparation company Jackson Hewitt.
That’s because the federal health law created some significant changes for tax filers, particularly those who didn’t have health insurance or who bought health plans through public insurance exchanges like Connecticut’s Access Health CT.
But for those less eager for a more complex tax season, here are a few things to know about Obamacare and taxes.
Taxes are the way to show if you complied with the individual mandate — and pay a penalty if you didn’t.
The tax process is the government’s way to enforce the health law’s individual insurance mandate and to reconcile the financial assistance provided to help people buy coverage.
If you had insurance all year, you just need to check a box on your tax form — unless you bought insurance through a public exchange.
No, you don’t have to send any proof showing you had insurance (at least, not this year). But the Internal Revenue Service reminds you that you’re responsible for being honest.
Get to know a new form: the 1095
To that space in your brain that remembers what a 1040 and a W-2 are, add a new set of digits: 1095. That’s the form people will receive that shows they had health care coverage during the previous year, and it’s going to be a key part of filing taxes in the future. For this tax season, it only applies to people who bought insurance through public exchanges like Access Health CT, but starting next year, most tax filers should expect to get one.
Public exchanges were supposed to send 1095-A forms to their private insurance customers by the end of January. (Access Health sent forms out to most customers during the last week of January, but delayed mailing the forms for about 3,600 customers, who might not receive them until the end of February.) Each customer’s 1095-A will include information about the people in the household who received coverage through the exchange, their monthly premium costs and any tax credits they used to discount their premiums.
People who purchased private insurance through the exchange won’t be able to file their taxes without the 1095-A. (As a result, some people who are used to filing early to get money back haven’t been able to.)
Starting next year, people with Medicaid and employer-sponsored insurance will get their own versions of the 1095 forms (which will be known as the 1095-B or 1095-C, depending on their source of coverage).
People who got discounted insurance might have to pay some back — or get a refund
Close to 60,000 Connecticut residents received federal subsidies to discount their health insurance premiums last year. Those subsidies are actually tax credits, paid in advance to a person’s insurance company. The amount is based on a person’s income.
If you received one of those tax credits, you’ll have to reconcile the discount you received with your actual income. If you earned more than anticipated when you applied for coverage, you might have to pay back some of the money used to discount your premiums. If you earned less, you could get some money back, since you’d be entitled to a larger tax credit than the government already paid.
The penalty for not having coverage isn’t a flat $95
The price of not having coverage — unless you qualify for an exemption — is often described as $95. But most people who face a penalty probably won’t pay that exact amount. The actual penalty for 2014 is either $95 per adult in the household plus $47.50 per child, or 1 percent of income — whichever is higher.
And it’s more complicated than that: The 1 percent is based on income above the filing threshold ($10,150 for individuals or $20,300 for married couples; the limits are slightly higher for those 65 and older). So if you’re single and earn $60,000, your penalty would be 1 percent of $49,850 — that is, your income minus the tax filing threshold ($10,150). That computes to a penalty of $498.50.
There’s more: If you were insured for part of the year, you only pay for the number of months in which you had no coverage. For example, if you had insurance for six months out of the year, you’d pay half the penalty you’d owe if you were uninsured all year. Any month in which you had insurance for at least a day counts as a month in which you had insurance. And if you were uninsured for fewer than three consecutive months, you don’t have to pay any penalty.
The penalty is increasing for those who don’t have coverage this year to $325 per person or 2 percent of household income, whichever is higher.
Another thing to note: You have until April 15 to file your taxes, but if you don’t have insurance now and want to avoid a tax penalty next year, you’ll have to sign up for coverage by Feb. 15, the end of this year’s open enrollment period.
There is help available, especially if your income is low
Tax preparers are anticipating a boost to their business this year. (That’s one of the reasons Steber and his counterparts at other tax preparation firms were eager about this tax season.)
The Volunteer Income Tax Assistance Program, or VITA, offers free tax help to people with incomes under $53,000. To find a location where these services are offered, click here.
AARP provides a tax aide program for people with low or moderate incomes. There are no age restrictions, although if space is tight, seniors will receive top priority. You can find a location here.
For more information on tax assistance programs in Connecticut, click here.