It’s that time of year again — tax season — and this year will be much different due to the Affordable Care Act. Under the new law everybody is required to have health care and if you weren’t insured for some or all of 2014, and you don’t have an exemption, you’ll have to pay a tax penalty when you file your return for 2014.
If you enrolled in a plan last year and received subsidies to lower your costs, then you’ll need to take a couple extra steps to ensure that you receive the right amount during the year. Didn’t enroll? Then you’ll have to pay the fine equal to $95 per adult or 1% of your salary, whichever is higher (note, you can avoid this penalty next year by enrolling for 2015).
Before you file your taxes, here are five tips to help you understand the changes:
#1: There are new tax forms
When you complete your taxes this year, you’ll have to check a box that says weather you had insurance last year. If you had ACA-compliant insurance for at least 9 months then you’re in the clear. If you didn’t, then you’ll be fined for every month you didn’t have coverage. If you weren’t insured at all, then you’ll pay $95 per adult or 1% of your salary, whichever is higher, and any children would incur additional penalties.
If you enrolled in insurance last year and received a subsidy to lower the cost of your monthly bill, then the IRS automatically sent out a new tax form to you that lists the amount of your subsidies you used for 2014. The new form is a “1095-A” and it’ll show you exactly how much you earned in advance tax credits. Once you receive that form, you’ll report the amount of subsidies you received and whether there are any discrepancies in the amount you should have received based on your income onto “Form 8962.” To report exemptions, you’ll use “Form 8965,” which is another new form created specifically for the ACA. If you didn’t receive the form yet or still have questions go here.
Don’t remember all of these forms? Don’t worry, all major e-file software will ask you the appropriate questions, automatically calculate any penalty and complete your forms for you, or you can file directly through the IRS website.
#2: A new “Special Enrollment Period” was just announced for tax season
Didn’t get insurance last year? The Whitehouse announced a temporary enrollment period for this tax season to enable people to sign up that didn’t last year and are required to pay a penalty. You can enroll anytime from March 15-April 30 and if you miss this deadline you won’t be able to enroll again for 2015. In 2016, the penalty fee increases substantially to $325 per individual or 2% of your total taxable income, whichever is greater, so be sure to sign up.
#3: If you received a subsidy in 2014, you’re need to verify your income
If you received a subsidy to help lower the cost of your premiums, then your projected salary you used to calculate your subsidy will need to match your actual salary you earned at the end of the year. This data will be provided in “Form 1095-A” which the IRS mailed to you in January (see #1 above). If you underestimated your income, you may owe a portion of the credit back. If you overestimated your income, then the government will reimburse the difference to you. Those who held off on receiving their credits until the end of the year will then have the amount applied to their refunds or the amount that they owe the IRS.
#3: All major tax software are update with all the new forms
Every online or software tax service such as TaxACt.com or e-file.com have updated software that provides step-by-step guides for navigate the new forms and calculating any penalities. Some companies, such as H&R Block offered free counseling sessions in January just by walking into their offices (offer has since expired).
Most of these services are free to file your federal taxes online and have a small fee to file your state taxes. Be sure to take advantage of these free services.
#5: See if you qualify for a special exemption
There are 30 special exemptions that you may be eligible for if you didn’t enroll last year, such as extreme financial hardship or certain religious affiliations. Here a complete list of the available exemptions from the IRS that you can apply for and if you don’t normally file taxes because you earn too little, usually less than $10,000 annually, then you don’t need to worry about filing anything; the IRS simply won’t charge you the penalty fee.