An Overview Of How The ACA Influences Your Tax Return

Posted by: Brookside Admin

You're likely familiar with the Affordable Care Act, commonly referred to as ObamaCare. Starting January 1, 2014, the federal government required all individuals to have adequate health insurance. The method for monitoring your compliance is through your individual tax return, and, for those without adequate coverage, additional penalties are added to your annual tax bill. Here's an overview of how the ACA affects you and your 2016 tax return. 

  • Open Enrollment

If you've made it this far without insurance coverage, you're likely out of luck for 2015. The open enrollment period ended February 15, 2015. But, the 2016 open enrollment period has already begun and will stay open until January 31, 2016. If you're currently subject to a tax penalty for failing to carry "minimum essential health coverage", it's important that you act now to gain coverage in 2016 so you're not subject to similar penalties next year. 

  • Tax Penalty

If you're without adequate health insurance currently, you're likely facing a tax penalty on your next return. In fact, if you were without health insurance for a total of 3 or more months in 2015, you're likely to be penalized. That will be assessed at a rate of $325 per uninsured adult in your household and $162.50 per child. That can add up to a maximum penalty of $975 per family. Or, the penalty could be 2-percent of your household income above the tax return filing threshold for your filing status. The amount you'll pay will be whichever of these options is greater. 

  • Individual Exemptions

Not everyone is required to carry the minimum health coverage in order to avoid a hefty penalty. Exceptions do exist for individuals who meet certain criteria. Those are: 

  1. Your gross income amount does not require you to file a tax return at all. For singles under age 65 in 2015, that amount would be $10,150. 
  2. The minimum insurance premiums would exceed 8.05-percent of your household income. 
  3. You only experienced a short insurance coverage gap in 2015 of less than 3-months. 
  4. You're a registered member of an American Indian tribe. 
  5. A member of your household was born, adopted or died during 2015. 
  6. An application & hardship exemption certificate is filed for a qualifying general hardship. 
  • Employers

Whether you're an owner of your own business, or an employee, it's important to know the laws involving health insurance. During 2015, any business with at least 50 full-time employees, or the equivalent of 50 full-time employees when full-time and part-time employees are combined, was required to offer a minimum level of health care coverage to employees and their dependents, or employers could pay the IRS Employer Shared Responsibility payments for employers who purchase coverage through the ACA marketplace. For those that fail to meet these guidelines in 2016 for 95-percent of their full-time employees, the business will face a tax penalty added to their tax bill. The IRS also is offering an incentive to small businesses with fewer than 25 full-time employees for expanding their health care offerings to employees. Those that qualify will earn a tax credit for up to 50-percent of the health insurance for 2-years. 

It's important to calculate how the ACA will affect your next tax return. If you are without health coverage currently, act immediately to gain coverage. If you have questions about your current situation and how it could inflate your tax bill, contact us at Brown Kinion CPAs at our office in Broken Arrow, or in Tulsa / Bixby.