IRS Issues Tax Tips Related to Healthcare Law Changes from ObamaCare

The IRS has issued a series of tax tips to help taxpayers understand the effect the Affordable Care Act, also known as ObamaCare, may have on their federal income tax returns.

Many of the tax law changes brought about by ObamaCare did not go into effect until January 1, 2014, which means taxpayers do not need to consider them until they file their income tax returns next year.  However, taxpayers do need to consider some changes when completing their tax returns due April 15, 2014.

Following are summaries of the seven healthcare-related tax tips issued by the IRS since the beginning of 2014.

Healthcare Choice Reminder

Every taxpayer has the option to purchase the minimum required amount of healthcare insurance to go without healthcare coverage for some or all of the year.  Healthcare insurance is available from employers, through a Marketplace, via Medicare or other government-provided healthcare programs, or directly from insurance companies.

Taxpayers who elect not to purchase healthcare insurance and who do not have an exemption must make an additional payment on their 2014 federal income tax return due April 2015.

Insurance Coverage Options under ObamaCare

The Department of Health and Human Services maintains the requirements for the health insurance Marketplace, which is available to anyone who needs to purchase health insurance.  Open enrollment for health insurance through the Marketplace began on October 1, 2013, and ends on March 31, 2014.

Some who purchase health insurance through the Marketplace may be eligible to receive a premium tax credit.

Premium Tax Credit

The premium tax credit is available to some taxpayers to help offset the cost of health insurance coverage.  To qualify for the premium tax credit, a taxpayer must meet the following three requirements:

  • Purchase health insurance through the Marketplace
  • Have a household income of no more than four time the federal poverty line
  • Cannot be eligible for health insurance coverage through an employer or government-sponsored insurance such as Medicare or Medicaid

Individual Shared Responsibility Payment

The Individual Shared Responsibility Payment refers to the payment that any taxpayer must make on their 2014 federal income tax return in the event they do not have the minimum health card insurance coverage or a qualifying exemption to go without healthcare insurance.

Exemptions may be granted from the Individual Shared Responsibility Payment if available healthcare insurance costs more than 8 percent of the taxpayer’s income, the gap in coverage is no longer than three months, or the taxpayer has other qualifying hardships.

The Individual Shared Responsibility Payment for 2014 is the greater of 1 percent of your income above the filing threshold for your filing status or a flat dollar amount based on the members of your household up to a maximum of $285.

Three Timely Tips

The effect ObamaCare has on a taxpayer is based on the taxpayer’s employment status, age, and participation in a tax-favored health plan.

  • An employer may report the value of a taxpayer’s health insurance coverage on the taxpayer’s W-2, but that income is not taxable.
  • Beginning in 2013, itemized medical expenses are deductible only to the extent they exceed 10 percent of the taxpayers adjusted gross income.  For those age  65 or older, the threshold is still 7.5 percent of the taxpayers adjusted gross income until 2017.
  • Taxpayers who participate in a health savings accounts (HSA) or flexible spending account (FSA) may be able to reduce their taxable income by using pre-tax dollars on healthcare costs.

Four Tax Facts

Most employees already have health insurance coverage that meets the minimum standard.  Therefore, they do not need to take additional action in 2014.  Those who do not have health insurance through their employer can purchase qualified plans through the Marketplace.

Those who purchase insurance through the Marketplace may qualify for a tax credit to reduce their premium.  Those who do not maintain the required minimum coverage must make a Individual Shared Responsibility Payment.

Impact of Changes on Premium Tax Credit

If you qualify for a premium tax credit, you can elect to receive the credit in advance to help offset the cost of health insurance.  In the event your circumstances change, you need to report the change to the Marketplace, as the change may disqualify you from the premium tax credit.

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by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.