There are a lot of changes to this year’s tax code – 46 to be exact – as a result of the Affordable Care Act (ACA). What’s most important is to be aware if your taxes – and your annual refund – will be affected.
Tax experts at H&R Block address common myths associated with the ACA and how they may impact your taxes:
Myth: If you chose not to have health insurance in 2014 and don’t qualify for an exemption, you will have to pay a penalty of $95.
Fact: The penalty for 2014 is calculated one of two ways. If you or members of your household don’t have health insurance that qualifies as minimum essential coverage, you’ll pay whichever amount is higher:
- $47 per child, $95 per adult, up to $285 per household
- 1% of annual household income less the filing threshold – In many cases this amount is actually higher and likely to be the amount of the fine that you will face.
Myth: If you have short-term medical coverage, accident or disability only, or travelers insurance, you don’t have to worry about the ACA.
Fact: Under the Affordable Care Act, almost everyone is required to have health insurance that meets the requirement for “minimum essential coverage.” Plans that meet this requirement include a health insurance plan through your job, federal or state Marketplace plan, COBRA or retirement plan, or a government plan like Medicare, Medicaid, TRICARE or CHIP. If you don’t have one of these, you may face the ACA tax penalty.
Myth: I got my health insurance plan from the Marketplace and received a tax credit to help pay for my insurance premiums. I know this won’t impact my taxes because I already calculated my 2014 estimated income and submitted it at the time of enrollment.
Fact: If you and/or a member of your household received the Advance Premium Tax Credit in 2014, the credit will need to be reconciled when you file your taxes. The Advance Premium Tax Credit amount that you received was based on an estimate of your household income and your expected family size. So when you file your taxes, the amount of Advance Premium Tax Credit you received will be reconciled against what you were actually eligible for based on your actual household income. This could impact your tax refund or taxes due.
For example, if you signed up for health insurance in the Marketplace and estimated your income at
$38,000, you could receive a tax credit of $2,700 to help pay for insurance. But let’s say you got a promotion and your actual income for the year came out to $46,000. In this scenario, your tax credit decreases to $1,500 and you will owe the difference at tax time, lowering your tax refund by $1,200.
Myth: The Advance Tax Credit I receive in 2014 is based on my 2013 income.
Fact: Your 2014 tax credit is based on your estimated income for 2014. If you provided an estimated income at the time of enrollment, you will need to reconcile your taxes.
Myth: I have two kids and neither my husband nor I have access to health insurance from our employers. I’m signing up for health insurance on the Marketplace because the government will give me a subsidy to help me pay for my monthly premiums.
Fact: Whether or not you receive a tax credit from the government for purchasing insurance on the Marketplace depends solely on your individual situation and your household income. Your income must fall within certain guidelines to qualify for a tax credit.
Myth: A tax credit, subsidy and advance are all different.
Fact: A tax credit, subsidy and advance all mean the same thing – government assistance in paying for health insurance plan premiums.
The ACA will have the biggest tax implications for those who received the Advance Premium Tax Credit (also known as a subsidy) or those who did not have health insurance coverage. One way to plan ahead this tax season is to learn more about how the ACA might affect your tax refund by visiting an H&R Block office on Jan. 8. Most H&R Block offices nationwide will be open for 12 hours straight, from 9 a.m. to 9 p.m., so you can come in without an appointment and speak to an ACA Specialist who can provide you with a no-charge ACA Tax Impact Analysis – your personalized review of how your taxes may be affected by the Affordable Care Act.