As you probably know already, health care has become mandatory for most people in the United States. If you are offered health coverage through an employer or purchase your own plan already, then nothing will change much for you tax wise. You simply mark a box on your tax return that states that you had full coverage the entire year. However, if you did not have health coverage for the entire year, and you do not qualify for any exemptions offered by the government, then you may have to pay a penalty on your tax return.
For 2014, the penalty is the larger of $95 per person and $47.50 per child under 18 up to a maximum penalty of $285 per family OR 1% of your modified AGI. If your modified AGI is below the filing thresholds (this means you do not make enough money to be required to file a tax return) then you don’t have to pay the penalty because you aren’t filing a tax return. The penalties increase in 2015 and continue increasing over the years. For 2015, the penalty is the larger of $325 per person and $162.50 per child under 18 up to $975 OR 2% of your modified AGI. This penalty will come through on Line 61 of Form 1040.
You also may be able to qualify for the Premium Tax Credit if you purchase health care from the Marketplace. The Premium Tax Credit is given to you based on the income you expect to earn during the year which you report to the government when you apply for health insurance. The credit reduces the amount that you must pay out-of-pocket for your monthly premium. It is extremely important to report any change in life events during the year to your health marketplace. These life events include: a significant change in your income during the year, change in your marital status, or an increase in your number of dependents. The reason you need to report these changes throughout the year is because they may affect the amount of the tax credit you receive.
If you do not report the changes and your income increases, you may receive too much of a credit during the year, and you may be required to pay back the excess credits you received on your tax return. For instance, you may qualify to receive a $60 credit at the beginning of the year. However, during the year, you get a new job and your income increases. This may cause the credit to which you are entitled to decrease. If you don’t report this change in income to the marketplace, you will continue to receive a credit that is higher than you are entitled to receive. When it comes time to file your tax return, you will receive Form 1095-A, and it will show your premium amount as well as the credit you received. You will need to file Form 8962 in order to determine the amount of the credit you are entitled to based on your Modified AGI. If you are required to repay a portion of your credit, it will come through on Line 46 of Form 1040.
There are also different ways in which you can claim the Premium Tax Credit if you are eligible. One option is to claim the credit throughout the year in order to reduce your monthly premium payment. Your other option is to forgo the credit during the year, and then claim the credit on your tax return for the year. Either way, you must file a tax return in order to claim the credit.
Be sure to get coverage for 2015 or make sure an exemption applies to you in order to avoid a penalty on your 2015 tax return! The marketplace enrollment date ended February 15, 2015, but you still may be able to enroll in the federal marketplace until April 30, 2015. If you are enrolling in the marketplace through your state, check to see if the dates for enrollment have extended. Click here for your state’s marketplace contact information!
If you are purchasing healthcare through the marketplace, be sure to update your income and other life changes discussed above in order to avoid having to repay your Premium Tax Credit at the end of the year!