Sunday, December 28, 2014

Not All Uninsured Will Have To Pay ACA Tax Penalty

One of the big changes income tax filers and tax preparers will face when they file their taxes next year has to do with the health care insurance requirement under the Affordable Care Act and whether they will pay a penalty for not having it.

Contrary to what some people think, not everyone who does not have the required health insurance this year will have to pay a tax penalty when filing their 2014 taxes.

Some may qualify for an exemption to reduce or eliminate their Affordable Care Act tax penalty..

In fact there are more than 30 exemptions you can apply for that fall into two categories.

People with incomes so low they're exempt from filing a tax return or those for whom the lowest-priced coverage costs more than 8 percent of their household income are some.

A recent survey shows that almost half of Americans are unaware they are required to report their health insurance status on their upcoming 2014 tax returns.

The Intuit TurboTax Health Survey, conducted online by Harris Poll, among over 2,000 U.S. adults over the age of 18, shows Americans are still largely unaware of the connection between their health care and taxes, a news release states.

Fifty-six percent were unaware of the tax penalty exemptions, while nearly half (45 percent) did not know about tax credits that allow those eligible to lower their insurance premiums, the survey showed.

Moreover, while 62 percent of uninsured Americans are aware that those without any health insurance will be required to pay a penalty, 87 percent do not realize that the deadline to avoid a tax penalty for 2014 has passed.

These numbers indicate that even with open enrollment (for 2015) in full swing many Americans still do not know the correlation between their health care and taxes,

There is confusion among tax preparers, the government and the Internal Revenue Service.

Theoretically, everything is set, But I'm expecting people to get notices.

Taxpayers may have to respond to the notices, and tax refunds may get held up, he said.

IRS spokesman Michael Dobzinski said most taxpayers will simply have to check a box to indicate they have appropriate coverage for the year.

The Affordable Care Act sets up a system of third party information reporting to the IRS and does not require taxpayers to submit documentation of health coverage with their tax returns; however, as always, taxpayers are responsible for the accuracy of the information on the tax returns that they sign.

Tax preparers should follow their normal due diligence in determining if their client has appropriate health coverage, Starting next year, insurers and certain employers will send reports on health coverage to the taxpayer and the IRS.

Meanwhile, some of those exemptions from the health insurance penalty are easier to claim. Others are more involved.

Exemptions can be claimed while filing an income tax return or through the health insurance marketplace/exchange.

If the exchange grants the exemption, it will generate an exemption certificate with a number that should be included on IRS Form 8965, to go with the income tax return.

According to the IRS, some of these exemptions can be claimed either during tax time or through the exchange. Some can be granted only through the exchange.

Exemptions that can be claimed on the tax return would cover some of the following people:

Those who had health insurance coverage by May 1, 2014.

Those whose household income is below the minimum filing amount. According to the IRS that threshold for 2014 is $10,150 for single taxpayers and $20,300 for married taxpayers who file a joint return.

Some of those eligible for exemptions granted by the health exchange/ marketplace include:

A member of a religious sect with objections to insurance and those who have experienced a hardship in 2014.

Those who meet one of the 15 hardship exemption criteria. Some of those include those who experienced homelessness, eviction, foreclosure, bankruptcy, or those who were denied Medicaid and live in state that did not expand Medicaid, such as Florida.

"The more difficult exemptions will be hardship exemptions that require documentation like utility shut-off, eviction or foreclosure notices or death certificates, for example," Mertes said.

The process is also more complicated, Mertes explained. It requires a taxpayer to submit a paper application to the Department of Health and Human Services (HHS). HHS will then provide the taxpayer with a number to enter on their tax return, he said.

Hardship applications with HHS should be done early in the tax season in order to meet the April 15 tax filing deadline. If a taxpayer doesn't receive their confirmed application number before April 15, they will have to file their return without the hardship exemption and complete an amended return after they receive the number,

To get full information on penalty exemptions, including how to apply for them, go to

Another misconception people have is amount the amount of tax penalty for the first year.

You may have heard that the penalty the first year is 'just $95, That's only partially true.

It's actually whichever amount is greater: $95 per adult member of the household ($47.50 for dependents under 18) or 1 percent of household taxable income less the minimum filing amount.

Many people will be surprised by this year.