To ensure that the ACA is affordable and covers all Americans, most people must have health insurance or pay a fine (from $95 per person up to 1 percent of household income, whichever is greater for the year 2014), though Americans making less than four times the Federal Poverty Guideline are allowed to reduce their monthly insurance premiums with subsidies granted by the federal government. Other Americans might qualify for exemptions, allowing them to avoid fees and fines altogether; however, special qualifications must be met in order for them to avoid these payments.
For all Americans, however, this tax filing season is the first instance when people will have to “deal with the Affordable Care Act” and unfortunately, this might result in lower tax refunds. To receive the subsidy, the ACA requires that individuals estimate their future income. The IRS then sends this information to insurance companies, which will subsequently reduce the premiums for eligible households.
But the IRS may overpay or underpay insurance companies based on these estimates, a problem that will be ameliorated when those who underestimated their income receive less in the form of a tax refund. Some tax filers might even have to return “hundreds or thousands of dollars back o the IRS [though] there is a $2,500 cap on paychecks.” The number of individuals who have to do so, however, is likely very small, but to determine appropriate subsidy amounts, Americans must complete Tax Form 8962. For those who might owe a penalty, Form 8965 will determine the amount of the fine.
Alternatively, those Americans who have insurance coverage without any subsidies simply need to check a box on their 1040 tax form, indicating that they are covered by an insurance policy. Indeed, in a recent statement, Jacob Lew, Treasury Secretary for the Obama Administration, reminded citizens, “For the vast majority of Americans, tax filing under the Affordable Care Act will be as simple as checking a box…A fraction of taxpayers will take different steps” such as claiming an exemption and yet “A smaller fraction…will pay a fee if they made a choice to not obtain coverage they could afford.”
Don’t forget the last day to sign up for health insurance this year is February 15.
(Photo courtesy of Phillip Ingham)