Obamacare: the tax impact of the Affordable Care Act explained
You’ve no doubt heard of ‘Obamacare’, the neat buzzword for the Affordable Care Act. But what is it? And how is it likely to affect your tax return?
Congress passed the Affordable Care act back in 2010 and, at the time, the potential impact seemed a long way off. But the 2015 tax filing season is now upon us and it’s clear that there are some very direct effects. And they’ll impact on every American – including you.
Getting qualified health insurance
To begin with, you’re now required to obtain health insurance for the entire year. And not just for yourself, but also for anyone who’s listed as a dependent on your return.
The IRS has issued several new forms to taxpayers this year, primarily Form 1095-A, B and C. And this is important, because you need all copies of Form 1095 to complete your 2015 tax return. These forms supply the info we, as accountants, need to report your health insurance coverage, calculate any credit and calculate any penalty that may apply.
Much of the information reporting for 2015 will be voluntary, so you may not receive any Forms 1095. That means we’ll need to get the following information from you in order to complete your return:
- Health insurer(s) for the year;
- Number of months of coverage;
- Members of your family covered by the above health insurance throughout the year;
- Your county of residence for the entire year, by month; and,
- Signed health insurance information form for our records.
So, it’s important to talk to your accountant early and make sure you can provide the required information.
The possibility of tax mistakes
One of the most common tax mistakes we see is college-age, dependent children filling out their own tax return incorrectly. If you have dependent children, our advice is simple – don’t let them fill out their own return!
There’s the potential for kids to make an error on the return that could cost you literally thousands of dollars in potential health care tax credits. So, if you’re in this situation, come and talk to us and we’ll be sure to fill out your children’s returns correctly with the information that’s required.
Calculating the health care tax credit
The IRS recently released Form 8962 to calculate the health care tax credit. The consensus has been that the credit itself is difficult to calculate and that’s it’s extremely easy to make a mistake and lose the credit (not a situation you want to find yourself in).
Getting a professional to fill out the return makes sense and could save you money in the long term. But be aware that the additional hours spent filling out Form 8962 will add considerable preparation time for this year’s return – so be prepared for longer turnarounds and higher fees as a result of this.
Paying back any excess credit
Did you receive an advance payment of the health care credit by purchasing insurance through the Exchange? If you did and received a greater credit than you were allowed, you’ll be forced to repay the excess with this year’s return.
Again, we’d advise consulting a professional adviser to make sure the return is complete and that the repayment is made properly. We also encourage you to visit www.healthcare.gov to see what’s available to you in the form of insurance, and what premiums will really cost for your family. This way, you’ll have a clear idea of the facts without a political or media-based bias.
The impact of the new surtaxes
The other aspects of the Affordable Care Act that no one is talking about are the two new surtaxes.
Many people incorrectly believe that only high-income Americans pay these surtaxes. But this won’t be the case for long. The tax isn’t adjusted for inflation, so within a few years all Americans will end up paying the additional surtaxes.
The best way to prepare for this is to plan ahead now. Utilize every fringe benefit your employer offers, maximize 401-k deferrals and call us if you’re expecting a big bonus, stock or asset sale or other major income change. We can then work with you to minimize the effects of these new taxes.
And, as always, talk to us early about your 2015 return. The more time you allow the better we’ll be able to help you.