Tax Provisions of the Affordable Care Act Effective 2014

Individual Shared Responsibility Mandate

Beginning January 2014, individuals who do not maintain minimum essential coverage (MEC) for each month or qualify for an exemption, will pay a fee, also referred to as a tax, on their Federal income tax return. 

For 2014 the penalty is the greater of a dollar amount or a percentage of income as follows:
    a) $95 per adult and $47.50 per child under 18, up to a maximum of $285 per family or 
    b) 1% of household income* above the filing threshold for a person's filing status 

However, the penalty cannot be more than the average premium for a bronze level health plan purchased in the Marketplace, which for 2014 is $204 per month ($2,448 per year) according to Revenue Procedure 2014-46. 

To put this in perspective, in 2014, an uninsured family of five could pay up to $12,240 in penalties for not having approved insurance.

*How to figure household income:  The calculation of household income starts with AGI then adds in any excludable foreign earnings as well as tax-exempt interest income.  Household income also includes that of any dependents required to file a tax return.

Penalty increases after 2014

  • The dollar penalty increases to $325 per adult and $162.50 per child, up to a family maximum of $975 for 2015; and $695 per adult and $347.50 per child, up to a family maximum of $2,085 for 2016
  • The percentage penalty increases to 2% in 2015 and 2.5% in 2016 and future years

How to determine if your clients have MEC?
Beginning in 2014, if your client purchases insurance through the Marketplace, they will receive a form in January 2015 from the Marketplace (Form 1095-A, Health Insurance Marketplace Statement, if they purchased insurance on the federal Marketplace).  If they purchased insurance through an employer or directly from an insurer, they may not receive an information reporting form since reporting is not mandatory until 2015. 

So, how will a CPA document that a client who has non-Marketplace insurance has MEC and does not owe the individual shared responsibility penalty?  There is no written guidance from the IRS on this matter.  However, during an AICPA-sponsored webcast on the ACA, the IRS indicated that tax return preparers should "apply a reasonable level of common sense" and do the best they can to make a good faith attempt to determine if their clients have MEC.

For more information, check out the following IRS resources and regulations:

Health Insurance Premium-Assistance Tax Credit

Refundable tax credits became available on January 1, 2014, to eligible taxpayers to help cover the cost of health insurance premiums for individuals and families who purchase health insurance through an insurance exchange.

How it works
An eligible individual or family who enrolls in a plan through an exchange will report their income to the exchange. Based on income level, the individual or family may be eligible to receive the credit.  An individual or family can choose to have all or a portion of the credit paid upfront to the insurance company to minimize their monthly premium payments.  If this option is chosen, Treasury will pay the credit directly to the insurance plan in which the individual is enrolled.  The individual will then pay the plan the total insurance premium less the amount of the premium tax credit.  A reconciliation will be done as part of the taxpayer's federal income tax return to determine if they are due any additional credit or if they have to repay any of the credit.  The reconciliation will be done on Form 8962, Premium Tax Credit.   Draft Form 8962, Premium Tax Credit (PTC) was released July 24, 2014.  In order to avoid a large repayment of the credit, individuals or families should report any life or income changes to the Marketplace as soon as they happen.   For more information on how to do this, refer to IRS Publication 5152 Report Changes to the Marketplace as they Happen.

Eligibility:  You must meet all of the following requirements to be eligible for the credit:

  • health insurance must be purchased on an exchange
  • not eligible for coverage through an employer or government plan
  • income must be within certain limits
  • cannot be claimed as a dependent on another persons tax return
  • do not file Married Filing Separate, except certain victims of domestic abuse, Notice  2014-23

For more information on the credit see:

W-2 Information Reporting on Health Insurance Coverage

The W-2 reporting requirement that small employers must report, on an employee’s W-2, the cost of health insurance coverage under an employer-sponsored group health plan, slated to begin in 2013 has been delayed until the IRS publishes additional guidance on this subject (per the IRS FAQ - item Q4).

Coming Soon - A Guide to W-2 Reporting

Cafeteria Plans

A qualified health plan offered through a health insurance exchange is a qualified benefit under a cafeteria plan of a qualified employer.

Time for Payment of Corporate Estimated Taxes for 2014

There will be an increase of 15.75% in the amount of corporate estimated tax payments for corporations with assets of at least $1 billion for payments due in July, August, and September 2014.  This provision was designed to help finance health care reform.