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Individuals

The Fifth Season, Tax!

By January 22, 2016No Comments

Your 2015 Tax Organizers and tax documents will be arriving soon. While you are waiting for your tax documents to arrive, this is the time to gather and prepare items such as business expenses, rental schedules, charitable contributions, medical deductions, property taxes, and more. This information can be used to complete the majority of your return early while we wait for your final items to arrive.

This year you may be receiving a tax form you are not familiar with, Form 1095. 2015 is the first year with full enforcement of the filing of the new Affordable Care Act health forms. Depending on your health insurance coverage, you should be expecting one or more of the following new healthcare forms.  Please click the link below for additional information related to these forms.

2015 is the year of new health care forms and increased scrutiny to bring taxpayers and employers in conformity with the Affordable Care Act (ACA).  In addition to increased penalties, the IRS is requiring additional forms to be issued by insurers and employers for the 2015 tax year.  All taxpayers who had health insurance coverage for any period in 2015 or worked for a large-employer as defined by the IRS will receive at least one of the three health insurance forms listed below:

Form 1095-A: Health Insurance Marketplace Statement

Will be issued to everyone receiving health insurance through the state or federal marketplace (also called the healthcare exchanges).  During the open enrollment period, taxpayers receiving healthcare through the marketplace estimate their income and dependents for the next year in order to approximate their premium tax credit.  This credit decreases their monthly insurance premium payments throughout the year.  Form 1095-A is used to calculate the actual credit that should have been received and the amount owed or due to the taxpayer with the filing of their return.  In addition, Form 1095-A is used to verify taxpayer coverage to avoid the shared responsibility penalty.

Form 1095-B: Health Coverage

Will be issued to all individuals who have a private insurance (non-marketplace) plan or have a plan through a self-insured employer.  A self-insured plan, also known as a self-funded plan, is one where the employer rather than an insurance company assumes financial risk for providing health care benefits to its employees.  Under a self-insured employer plan, an employer pays an expense out-of-pocket for each claim rather than paying all or part of an insurance premium on behalf of its employees.  The purpose of Form 1095-B is to provide evidence that the taxpayer and their dependents had minimum essential coverage for the prior tax year and that they are not subject to the shared responsibility penalty.  This form will include the type of coverage held, the individuals covered, and the period of coverage.

Form 1095-C Employer-Provided Health Insurance Offer and Coverage

Will be issued by all employers with 50 or more full-time and/or full-time equivalent employees.  The purpose of the form is to confirm that each applicable large employer is offering health-care coverage as required by the Affordable Care Act.  Form 1095-C does not provide details of each employee’s actual plan, just the coverage that was offered to each employee.  The information on this form may also be used to determine if an individual or family may qualify for the affordability exemption and, therefore, is not required to have health insurance coverage.  For the purposes of determining if an employer is an applicable large employer, a full-time employee is one who works 30 or more hours a week and a full-time equivalent is two or more part-time employees whose hours worked add up to 30 hours a week.  The rules involving the employer filing requirements for this form is extremely complex and the penalties are very expensive.  If you are an employer close to over the 50 employee threshold, please contact a tax professional for additional information.

Shared Responsibility Penalty, Minimum Essential Coverage, & Exemptions

If an individual or family does not have minimum essential coverage and does not meet any of the insurance exemptions, they will be subject to a monetary penalty due with their tax return.  The shared responsibility penalty for 2015 is $325 per adult and $162.50 per child up to the greater of $975 per family or 2% of total household income greater than the filing threshold.  In 2016 this penalty will increase to $695 per adult and $347.50 per child up to the greater of $2,085 or 2.5% of household income.

Minimum essential coverage will be met by any of the following plans:

–          Employer sponsored group coverage, self-insured plan, or governmental employee coverage

–          COBRA coverage

–          Retiree coverage

–          Individual health coverage attained directly through the marketplace, private insurance company, or student health plan

–          Coverage under government-sponsored programs including, but not limited to: Medicare Part A and Advantage plans, full-coverage Medicaid plans, TRICARE, comprehensive coverage through the Department of Veterans Affairs, Children’s Health Insurance Program (CHIP), etc.

–          Comprehensive foreign health plans

If an individual or family does not have minimum essential coverage, there are several exemptions that, if met, will eliminate the shared responsibility payment.  The most common exemptions are included below:

–          Income is below the federal filing threshold.  For 2015 this is $10,300 for single and $20,600 for married filing joint taxpayers.

–          Financial hardship as determined by the ACA caused by an unexpected event that would cause the cost of health care to create a deprivation of food, clothing, or other necessities including, but not limited to: facing eviction or foreclosure, receiving a shut-off notice from a utility company, recently filing for bankruptcy, recently experiencing domestic violence, recent death of a family member, recently experiencing a natural disaster resulting in significant damages, experiencing unexpected expenses in caring for a family member, etc.

–          The gap in health insurance coverage is less than three consecutive months during the year.

–       Affordable insurance is not available.  By definition, unaffordable insurance is 8.05% or more than actual household income.

–          Individuals in jail, prison, or other correctional facility are not required to obtain health coverage.

Understanding your health care forms and periods of coverage are important to ensuring you have minimum essential coverage and are not subject to the shared responsibility payment.  If you do not have coverage or have a gap during the year, you may meet an exemption and may not be required to pay the penalty.

These rules can be confusing and cumbersome; please feel free to contact us at 858-558-9200 with any questions or concerns you may have involving health care compliance or any other tax matters.

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