The Affordable Care Act has been in place a few years now, and you’ve probably noticed that the tax reporting you have to do on your personal return depends in part on the way you obtain health insurance.
For example, say that during 2016 you are enrolled in a plan through your employer, a government plan such as Medicare, or certain self-funded plans. In this case, you generally have what’s known as MEC or “minimum essential coverage.” MEC is insurance that meets specified cost-sharing percentages and that includes benefits such as hospitalization and emergency services. When you’re covered under an MEC plan, Affordable Care Act penalties typically don’t apply, and you report your coverage on your federal tax return by checking a box. You may receive Form 1095-C from your employer, or Form 1095-B if your coverage is provided by certain private insurers or a self-funded plan. You don’t have to attach either of these forms to your return.
If you purchased your health plan on the government website known as the Marketplace, the government will send you Form 1095-A. You’ll use the form to complete your income tax return, and keep it with your tax records for the year. Form 1095-A may indicate that you received advance payments of the premium tax credit, a federal tax credit that can reduce your health insurance premium. If so, you’ll need to complete Form 8962 and file it with your income tax return. The form reconciles the premium tax credit you received with the actual amount you should have received.
Tip: Has your life situation changed during 2016? Recalculate your advance payments of the premium tax credit if you recently married, had a baby, or changed jobs. Otherwise you may end up with a surprise in the form of a smaller refund or a required repayment next year when you file your federal income tax return.
What if you don’t have health insurance coverage for 2016? Unless you qualify for an exception, you’ll pay a penalty. For 2016, the penalty is the greater of 2.5% of your household income, or $695 per adult ($347.50 per child under 18). The percentage calculation and the flat dollar amount both have specified maximum limits.
Please contact us for information about other ways the health care rules can affect your individual income tax return.