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An Obamacare guide for filing your taxes

looking at tax form

One of the hardest parts about covering America’s healthcare system is that if someone comes to us with a question– even if it sounds relatively simple– there’s almost never an easy answer.

For example, wondering what the penalty for not having health insurance will be in 2015? The short answer is $325 per person or 2% of your household income, whichever is higher; but the real answer is it depends— based on your income, family size, how many months you went without coverage, and whether you qualify for any exemptions. Want to know whether your income is low enough to qualify for Medicaid? Well it depends on your family size and what state you live in. If your state didn’t expand Medicaid under Obamacare, it also may depend on whether you’re pregnant, disabled, a parent, etc.

You might notice that we answer questions with “it depends” a lot.

So we were somewhat shocked that we recently got a question from a reader that seemed like it would require a complicated answer (it’s about Obamacare and filing taxes), but actually did not require an “it depends”:

When you’re filing your taxes, how do you provide proof that you had insurance in 2014?

Answer: You don’t have to provide proof. If you had coverage all year, you simply check the box that says you had full year coverage (line 61 on the 1040). That’s it. Here’s what it looks like:

1040 health coverage reporting

Unfortunately that turned into a slippery slope of other questions with “it depends” answers. What do you owe if you didn’t have coverage, or only had coverage part of the year? If you bought coverage on the exchange, how do you determine whether you got the correct subsidy? If you ended up making more money than you estimated when you applied for Obamacare, how much do you have to pay back?

To help answer these questions (and others) we’ve put together a quick guide to how Obamacare works when you’re filing your taxes.  

For everyone

Determine if you had “minimum essential coverage” for all of 2014

Before you check that box saying you had year-round health coverage, you should make sure that whatever you’re covered by counts as “minimum essential coverage.”  If it’s not, you have to pay the individual mandate penalty.

This isn’t something you should be too worried about– most types of health coverage, including Medicare, Medicaid, VA benefits, TRICARE, Obamacare coverage, COBRA, CHIP, and most employer-based plans will all count. For 130 million or so taxpayers, all you’ll have to do is check the box.

However, certain plans that only provide limited benefits do not qualify. For example, if you just have a stand-alone dental plan or disability insurance, you’d still have to pay the penalty. The IRS has a list outlining what does and doesn’t count as minimum essential coverage here, and if you’re still unsure, you can contact your insurance company or ask your employer.

For those who had a coverage gap

Figure out what you owe or if you qualify for an exemption

For those who went without coverage, the instructions for Form 8965 will tell you how much you’ll owe for the shared responsibility payment (aka the individual mandate penalty) or if you qualify for an exemption. You only file the actual 8965 form if you do in fact qualify for an exemption, but the instructions contain a worksheet for figuring out your penalty, which you’ll enter onto your return.

There are a ton of possible exemptions– the full lists are here and here, but these are some of the more common ones:

  • Your gap in coverage was less than three months;
  • Your gap in coverage was before May 1 of 2014 (Obamacare’s open enrollment ended March 31, but some coverage purchased didn’t start until May 1– as long as you had coverage by then you’re exempt from the penalty);
  • Your income is below the filing threshold ($10,150 for an individual in 2014);
  • Coverage was unaffordable because it would have cost more than 8 percent of your household income;
  • If you experienced a hardship that prevented you from buying a marketplace plan;
  • You live in a state that didn’t expand Medicaid, and your income is below the cutoff.

Some exemptions can be claimed right on your tax return, but for others you’ll have to contact your state’s Obamacare marketplace for an official exemption. Which is why, says Kaiser Health News, you shouldn’t procrastinate:

If you do have to go to the marketplace to get an exemption, be aware that it may take two weeks or more to process the application. Act promptly if you want to avoid bumping up against the April 15 filing deadline, says Timothy Jost, a law professor at Washington and Lee University who is an expert on the health law.

At twelve pages long, the instructions on the 8965 are pretty intimidating, and if you don’t qualify for an exemption, calculating what you owe can be tricky if you’re doing it by hand. If you can, filing your taxes online should make things much easier– sites like Turbotax and H&R Block are free, and their programs will simply ask questions to determine whether you qualify for an exemption and automatically calculate your penalty if you don’t.

For those who bought coverage on an Obamacare exchange

Make sure you got the right subsidy

Anyone who bought coverage through an Obamacare marketplace in 2014 will be sent Form 1095-A, your Health Insurance Marketplace Statement, sometime before the end of January. (It will look like this, but with all your info filled in.) It’s sort of like a W-2 for health insurance— it will have the total monthly premiums for your plan, and whatever premium tax credits you received, which were paid directly to the insurance company.

If you don’t receive the form (and it should also be posted to your healthcare.gov account), or if you think the information on it is wrong, you should contact your state’s marketplace to get a new form. As with a W-2, you can’t file your taxes without it.

You’ll use the information on your 1095-A to fill out Form 8962, which is the form you use to calculate how much of your premium subsidy you already received; how much you should have received based on this year’s income; and whether you have to pay any of it back (because your income for ended up being higher than you estimated when you enrolled) or are due a refund (because your income for the year was lower than you estimated). Form 8962 looks like this:

form 8962

One more important thing to keep in mind: if you totally biffed your income estimate for 2014, and your income is below 400% of the federal poverty line, there are limits to how much of the premium subsidy you’ll have to pay back:

subsidy repayment limits

Form 8962 will let you know if you hit those limits, as should any tax online preparation program.

Where to go for more help

The IRS has published a pretty helpful guide to what’s new on your taxes as a result of the Affordable Care Act. We’d also suggest talking to a professional tax-preparer if your situation is particularly complicated– and many lower income consumers and seniors can get free tax preparation assistance through the IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs.

And if you have general questions about how Obamacare affects your taxes (keep in mind we’re not accountants), leave them in the comments below!

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