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There has been abundant talk all over the internet, including our newsletters, about the changes that the Affordable Care Act brought along, not in the least tax-wise. We mentioned, only a couple of weeks ago, that there are new Forms 1040 for year 2014 that include one line (or several lines, as the case may be) which prompts for information on health coverage, as well as new forms altogether for health coverage exemptions and the premium tax credit.
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While most of you will simply need to check a box on Line 61 of your tax return to indicate you had health coverage for all of 2014, there are also new lines on Forms 1040, 1040A, and 1040EZ related to the health care law.
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Here is some more detailed information about the updates to the existing forms and the new forms.
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- You need to complete the new Form 8965, Health Coverage Exemptions, to report a Marketplace-granted coverage exemption or claim an IRS-granted coverage exemption on the return.
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Beginning in 2014, individuals must have health care coverage, have a health coverage exemption, or make a shared responsibility payment with their tax return. Use Form 8965 to report a coverage exemption granted by the Marketplace (also called the “Exchange”) or to claim a coverage exemption on your tax return. You can use the worksheet in the Form 8965 Instructions to calculate the shared responsibility payment In addition, if for any month you or another member of your tax household had neither health care coverage nor a coverage exemption, these instructions provide the information you will need to calculate your shared responsibility payment.
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Some coverage exemptions are available only from the Marketplace, others are available only by claiming them on your tax return, and others are available from either the Marketplace or by claiming them on your tax return. If you or another member of your tax household was granted a coverage exemption from the Marketplace, complete Part I of Form 8965. If you or another member of your tax household is claiming a coverage exemption on your tax return, complete Part II or Part III of Form 8965. Depending on your situation, you may need to complete one or more parts of the form.
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Form 8962, Premium Tax Credit (PTC), must be used by people who enroll, or whose family members enroll, in a qualified health plan offered through a Marketplace.
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The credit provides financial assistance to pay the premiums by reducing the amount of tax you owe, giving you a refund, or increasing your refund amount. You must file Form 8962 to compute and take the PTC on your tax return.
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Advance payment of the premium tax credit (APTC), is a payment made for coverage during the year to your insurance provider that pays for part or all of the premiums for the coverage of you or an individual in your tax family. Your APTC eligibility is based on the Marketplace’s estimate of the PTC you will be able to take on your tax return. If APTC was paid for you or an individual in your tax family, you must file Form 8962 to reconcile (compare) this APTC with your PTC. If the APTC is more than your PTC, you have excess APTC and you must repay the excess, subject to certain limitations. If your PTC is more than the APTC, you can reduce your tax payment or increase your refund by the difference.
You need to complete Form 8962 to reconcile advance payments of the premium tax credit, and to claim this credit on the tax return.
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Additionally, if you purchased coverage through the Health Insurance Marketplace, you should receive Form 1095-A, Health Insurance Marketplace Statement, which will help complete Form 8962.
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| And now let’s see how these forms impact your 2014 Form 1040. |
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| On Form 1040, you have the following lines to enter your information: |
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- Line 46: Enter advance payments of the premium tax credit that must be repaid;
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- Line 61: Report health coverage and enter individual shared responsibility payment;
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- Line 69: If eligible, claim net premium tax credit, which is the excess of allowed premium tax credit over advance credit payments.
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| Here is what you need to know about Forms 1040A and 1040EZ. |
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| The 1040A is the short version of the form 1040. The 1040EZ is the easiest and is mainly used when there are no to little deductions. With 1040A, you can claim deductions and tax credits. Compared with the 1040EZ, the 1040A lets you claim IRA dedications in addition to claiming student loan interest. |
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There are benefits in using form 1040A in that it is faster to complete than the standard 1040 as well as being quicker for the IRS to process. If you are owed a refund, the faster your paperwork is claimed and accepted, the sooner you will get your refund.
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| To qualify to use form 1040A, there are six different conditions that you have to meet. Your income must have been from wages, interest, dividends, scholarship, Social Security or pensions. You have to claim at least one of the following adjustments: IRA contributions, college tuition and fees deduction or classroom expenses. |
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| Your taxable income must be $100,000 or less. You had no incentive stock options or you are claiming only the credits owed to you, such as child tax credit, earned income credit, education credits, and credit for dependent care of the elderly and disabled. |
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| On your Form 1040A you can use the following lines: |
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- Line 29: Enter advance payments of the premium tax credit that must be repaid;
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- Line 38: Report health coverage and enter individual shared responsibility payment;
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- Line 45: If eligible, claim net premium tax credit, which is the excess of allowed premium tax credit over advance credit payments.
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On your Form 1040EZ you can find the following new line:
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- Line 11: Report health coverage and enter individual shared responsibility payment.
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| Form 1040EZ cannot be used to report advance payments or to claim the premium tax credit. |
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In the end, we wish you a smooth tax season and, as always, advise you to enroll help from your tax professional in all your dealing with the iRS.
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