UGH!! It’s tax time. The Affordable Care Act has linked our health insurance and our income taxes in new ways. Here are some guidelines:
If your employer contributes to the cost of your health insurance:
• If your employer provides a group benefits plan that includes health insurance, you receive those benefits tax free. You are NOT required to show the value of the health insurance premiums that your employer pays as taxable income. That is because there is a law that specifically allows an employer sponsored group benefit plan to be a deductible expense for the employer and a tax free benefit for the employee.
• If an employer reimburses you or pays the premium for an individual insurance policy, the tax treatment is different. There is no employer sponsored group benefit plan and the dollar amount of the premium that the employer pays is considered taxable income to the employee. For tax purposes, the premium paid by the employer is considered the same as receiving a raise.
If you have an individual health insurance policy and pay your own premiums, there are several tax considerations that may fit your situation:
• You are not self-employed: The premiums you pay plus your out-of-pocket medical costs can be itemized on Schedule A. However, only the amount that exceeds 10% of your Adjusted Gross Income is allowable as a deduction.
• You are self-employed: Premiums paid for health insurance for yourself, your spouse, and your dependents are generally deductible on line 29 of your tax return (Form 1040). The deduction cannot be greater than the income reported for your business.
• Your health insurance was purchased through the Health Insurance Marketplace: Form 1095A is new for 2014. It is issued by the Marketplace and reports the amount of Premium Tax Credit that you received. It is available online at healthcare.gov through your Marketplace account. The forms were also mailed in February, 2015. Form 1095A is used to complete another new form – 8962. This will be included with your 2014 tax return and is used to calculate the difference between your Premium Tax Credit (PTC) based on your final taxable income and the PTC that was estimated at the time you enrolled in the Marketplace. The difference in the two figures will result in a refund if you are owed more PTC or repayment of excess PTC that you received during the year.
• You did not have health insurance in 2014: Line 61 of your tax return (Form 1040) is where you report whether you had qualifying health care coverage throughout 2014. If you did not have coverage, you will have 2 options.
o Claim an exemption using Form 8965. You can qualify for an exemption if your income is too low, if health insurance would have cost more than 8% of your income, if you have a religious objections, and others. Refer to https://www.healthcare.gov/fees-exemptions/exemptions-from-the-fee/ for additional information
o You will pay a penalty if you did not have health insurance AND you are not eligible for an exemption.
Your health insurance agent and your tax preparer can assist you in determining how the new health insurance and tax laws impact you.
by Chris McPike, Vice President
402-488-5100