How the Affordable Care Act will Affect Individuals and their Tax Return

This page will provide you with information on how the Affordable Care Act (ACA) will affect taxpayers for tax year 2017, including the penalty provision which is still in effect for 2017. It covers the following topics:

For individuals who did not have health insurance for all or part of 2017:

For those individuals who purchased their health insurance through the  federal or a state marketplace:

Additional Information Links for the Affordable Care Act

Health Coverage Exemptions
 Individuals who do not have health  insurance for all or part of 2017 may qualify for an exemption from the  requirement to have health insurance. If they receive an exemption, they will  not be subject to the individual shared responsibility payment (penalty).

How you apply for an exemption  depends on the type of exemption. A few exemptions must be applied for through  the Marketplace via healthcare.gov however most exemptions may be requested  when the 2017 federal return is filed.

Regardless of which type of exemption  an individual receives or is requesting, they must complete Form 8965 (Health Coverage Exemptions) and include it with their 2017 federal return. If an exemption is  granted by a Marketplace an Exemption Certificate Number is issued which must  be included on Form 8965, Part I.

Marketplace only exemptions

Only Can Request When Filing Federal Return

     
  • Coverage  is considered unaffordable
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  • Short  coverage gap
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  • Two  or more family members’ aggregate cost   of self-only employer sponsored coverage is more than 8% of household  income
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  • Member  of Health Care Sharing Ministry
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  • Members  of Federally Recognized Indian Tribe
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  • Incarcerated
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  • An  American Indian, Alaska native, or a spouse or descendant of either who is  eligible for services through an Indian Health Care provider

See the following for more  information:

What to do if a Taxpayer’s Circumstances Change during 2017
 If an  individual received an advance premium tax credit (subsidy) to help pay for  their 2017 health insurance through the federal or a state marketplace, it is  important to remember that it was based on their income from a prior year. In  order to ensure that the advance payments closely matches the premium tax  credit amount that will be calculated on their 2017 federal return they need to  report any significant changes in their income or any change to their family  size to the Marketplace if it occurs during 2017. This will allow the  marketplace to adjust the subsidy amount in order for the individual to avoid  having to pay some of it back when they file their 2017 federal income return  in 2018.

For more  information see Report Changes in Circumstances to  the Marketplace Health Care Tip on the IRS website.

Advance Premium Tax Credit (Subsidy)
 Approximately 85% of individuals who  purchased their 2017 health insurance through the federal or state Marketplace will  receive an advance premium tax credit (subsidy) that reduces the amount they  pay for their monthly health insurance premiums.

Who is eligible for an Advance Premium Tax Credit?
 As a reminder, an individual is eligible  to receive an advance premium tax credit (subsidy) if they purchase their  health insurance through a Marketplace and their income is between 100% and  400% of the Federal poverty level.

How is the Advance Premium Tax Credit (APTC) Calculated by the  Marketplace?
 The APTC (subsidy) is calculated by  the Marketplace based on an estimate of the individual’s income for 2017 and  their family size. The income estimate is usually based on the income reported  on a prior year return usually for 2016.

Based on the individual’s income and  family size the APTC is calculated as follows:

     
  • Determine  the annual premium the individual will have to pay (expected contribution)
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  • Look  up what the total 2017 premium is for the Marketplace’s second lowest cost  (silver) level coverage (benchmark plan)
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  • Subsidy  amount is then calculated as the difference between the “benchmark plan”  premium and the individual’s expected contribution

For more information see the Premium Assistance Subsidy page on healthcare.gov.

How will an individual know what their total Advance Premium Tax Credit  was for the Year?
 Early each year everyone who  purchased their insurance through a Marketplace will receive a Form 1095-A (Health Insurance Marketplace Statement). This information  return will contain the following information that they will need to complete  Form 8962 (Premium Tax Credit):

     
  • Who  was covered in the household
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  • Monthly  Premium Amount, Second Lowest Cost Silver Plan Monthly Premium Amount, and  Monthly amount of any Advance Premium Tax Credit they received.

For more information and see  questions and answers on Form 1095-A see the Health Insurance Marketplace  Statements page on  the IRS website.

Premium Tax Credit and Form 8962
 It is important to understand that  anyone who received an advance premium tax credit (subsidy) during the current  year must file a federal income tax return for that year and reconcile the  calculated Premium Tax Credit with the amount of subsidy they received. If they  do not then they can be denied an advance premium tax credit in subsequent  years.

Form 8962 (Premium Tax Credit) does two things for those who purchased their  health insurance at the federal or a state Marketplace:

     
  • Calculates  the Premium Tax Credit for the year based on the income and family size  reported on their current year federal return.
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  • Reconciles  the advance premium tax credit (subsidy) that the individual received during the  year with the calculated Premium Tax Credit for the current tax year,

The result will be one of the  following:

       
  • A  refundable credit if the premium tax credit is greater than the subsidy amount
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  • An  additional tax if the subsidy amount is greater than the premium tax credit
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If the result is a refundable credit  the amount will carry to Form 1040, line 69.

If the result is an additional tax  the amount will carry to Form 1040, line 46.

For more information see the  following on the IRS website:

Individual Shared Responsibility Payment (Additional Tax for not having  Health Insurance)
 Although the recently passed Tax Cuts  and Jobs Act of 2017 repealed the ACA individual penalty provision it does not  go into effect until 2019. Therefore the penalty provision is still in effect  for 2017 and 2018.

Therefore, an additional tax (penalty  or individual shared responsibility payment) will be included on an  individual’s 2017 federal tax return if they (or any member of their family) do  not have health insurance coverage for at least nine months during 2017 or they  qualify for or have already obtained a health coverage exemption.

The penalty for 2017 (which has risen  substantially) is calculated as the greater of:

     
  • 2.5%  of the individual’s income that exceeds their 2017 filing threshold (personal  exemptions plus standard deduction for their filing status):

Or

       
  • $695 for taxpayer, spouse, and dependents over age 18
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  • $347.50 for each dependent under age 18
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  • The maximum family flat dollar amount $2,085.
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