Those H&R Block commercials with fretful Mr. Bowtie (Block senior tax adviser Richard Gartland) talking about Obamacare and your 2014 tax return are a little chilling. Watching them might lead you to believe the health care law will make preparing your ’14 taxes painful — thanks, Obama!
Truth is, for most taxpayers — those with employer health coverage or Medicare in 2014 — dealing with Obamacare on their tax forms won’t require anything more than checking a box (Line 61 on the 1040, 38 on the 1040A or 11 on the 1040 EZ).
(MORE: 10 Things Your Health Insurer Won't Tell You)
3 New Tax Forms
But for others — people who bought health insurance through an exchange in 2014 and those who didn’t buy health coverage — tax filing will, indeed, be more complicated. They’ll not only need to do new calculations, they’ll face three new tax forms:
- The 1095-A Health Insurance Marketplace Statement (one page, 33 lines; one page of instructions)
- Form 8962 Premium Tax Credit (two pages, 36 lines; 15 pages of instructions)
- Form 8965 Health Coverage Exemptions (one page, 13 lines; 12 pages of instructions)
Forms 1095-A and 8962 are for people who bought health coverage through the Marketplace last year (even people who file the 1040 EZ Form could be stuck completing Form 8962); Form 8965 is for those who got a Marketplace coverage exemption or plan to claim a 2014 exemption from the federal mandate to have health coverage.
The Tax Penalty Some Will Owe
What’s more, the 17 percent of Americans who went without health coverage last year will need to settle up with the IRS on their 2014 returns and pay the tax penalty (the government calls it a “Shared Responsibility Payment”), unless they qualify for an exemption.
Hector De La Torre, Executive Director of the Transamerica Center for Health Studies, says “there’s a lot of confusion around what that tax is.”
For 2014, the penalty is the greater of 1 percent of your income above the filing threshold of $10,150 for singles and $20,300 for married couples filing jointly or $95 per adult ($47.50 per child), with a maximum of $285 for a family, whichever is higher.
(MORE: 9 Changes Affecting Your Money in 2015)
The 2015 penalty is much steeper and you'll generally owe it if you didn't enroll through the Marketplace by Sunday February 15. For 2015, the penalty is the higher of 2 percent of income above the threshold or $325 per adult/$162.50 per child.
You’ll be able to enroll later this year only if: you have a qualifying life event (such as a marriage, the birth or adoption of a child, a move to a new area with different health options or the loss of your current health coverage); your income drops low enough to qualify for Medicaid or you have an “exceptional circumstance” such as a serious medical condition that keeps you from enrolling.
“But if you want to enroll due to a qualifying event, you’ll need to do it soon after that. You can’t enroll in June if you got married in February,” said De La Torre.
Obamacare and Your 2014 Tax Return
The IRS’s 21-page explainer, Health Care Law: What’s New for Individuals and Families (Publication 5187), lays out the tax implications of Obamacare, but here are the key things to know:
If you had employer-based health coverage or bought an individual policy off-exchange in 2014: You’ll get the new IRS Form 1095-B or 1095-C documenting that you had insurance. Just remember to check the box on your tax return noting you were insured.
If you bought health coverage on your own on the Marketplace in 2014: You’ll need to complete Form 8962 to calculate your Premium Tax Credit, the federal subsidy to purchase health insurance. To claim a credit, your income generally had to be between 100 and 400 percent of the federal poverty line and you can’t file a “Married Filing Separately” return or be claimed as a dependent by another person.
You’ll be receiving, if you haven’t already, that Form 1095-A Health Insurance Marketplace Statement telling you what you need to put down on Form 8962.
“There’s one major wrinkle — if you received advance payments on your premiums and got a subsidy on the Marketplace,” said De La Torre. If your 2014 income wound up higher than you anticipated when you bought the coverage, you could owe the IRS money for the excess of the Premium Tax Credit you’re allowed to claim.
TurboTax estimates that 80 percent of people who qualified for the subsidy took it as an advance premium tax credit. And H&R Block expects as many as half the 6.8 million Americans who got the subsidies may have to refund money to the government.
Conversely, if your income was less than you told the Marketplace you thought it would be, you may get a tax refund.
If you didn’t have health coverage in 2014: Use Form 8965 to see if you qualify for an exemption from the tax penalty. Online tax-prep companies like TurboTax have easy tools showing you whether you’ll be exempt.
Among the exemptions: You went without coverage for less than three consecutive months; you had a hardship such as a foreclosure or the cost of minimum coverage (your “required contribution”) would’ve been more than 8 percent of your household income. If you qualify for an exemption, fill out Form 8965.
If you do owe a penalty, note that on the 1040, 1040A or 1040EZ and include the amount as part of your taxes due when you file.