Will you have a credit or a penalty on your tax return this year? Will you have both a credit and a penalty? Or will you have neither a credit nor a penalty?
With the introduction of the Affordable Care Act (or Obamacare) each one of these above scenarios is a possibility on your tax return. The question is, which one will apply to you?
Will you have a credit? This credit is called the Premium Tax Credit and it may be available if you purchased your health insurance through the Marketplace (The Marketplace is the name used by the government to describe where people without health care insurance can find health insurance options and also purchase insurance).
If you qualify for this credit, you will need to claim it on your tax return. The amount of the credit will depend on a number of different circumstances. You also must have received form 1095-A from the Marketplace in order to claim the credit. Be careful though, some have already received the credit in the form of an advanced payment. When this occurs you could be responsible to pay some of the credit back if you received too much!
Will you have a penalty? Then penalty is called The Shared Responsibility Payment and it is for anyone without minimum essential health care coverage or for those that do not qualify for a health care coverage exemption. To put it simply, if you don’t have health insurance…you will pay a penalty. But don’t worry, there are some exceptions.
If you are unfortunate enough to have to pay the penalty, it will be calculated on a monthly basis for each month you did not have insurance. This amount goes through a complicated formula that is based on your income, filing status, national premium average and number of uninsured household members. This can be quite complex. But to simplify, the penalty will be the greater of 1% of your household income that is above the filing threshold or $95 per adult and $47.50 per child (limited to $285 per household) for tax year 2014. There are many more rules to this, but this is the main part of the penalty.
Will you receive the credit and pay the penalty? Possibly. If you purchased health care coverage through the marketplace but not at the beginning of the year, you may have a credit for purchasing the health care and a penalty for the months that you did not have health care.
Will you have neither a credit nor a penalty? This is possible as well. If you purchased your own health care coverage outside of the marketplace, or if you had health care coverage provided by your work, then you will not qualify for the credit and will not be subject to the penalty. This is because you had health care insurance for the entire year.
As you can see, the affordable care act can be very complex. We highly advise you to consult with a tax professional to see how this credit or penalty applies to your specific situation. At Listo Tax Solutions, we take great care to insure that you comply with the new Affordable Care Act so that you do not receive a dreaded IRS letter later in the year. Contact your local Listo Tax Solutions office today to setup an appointment.