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:
- Health Care Coverage Exemptions
- Individual Shared Responsibility Payment (Additional Tax or Penalty)
For those individuals who purchased their health insurance through the federal or a state marketplace:
- What an Individual Should Do If They Had a Change in Circumstances
- Advance Premium Tax Credit (Subsidy)
- Premium Tax Credit and Form 8962
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
- Coverage considered unaffordable based on projected income
- Lived in a state that didn’t expand its Medicaid program but you would have qualified if it had
- Members of Certain Religious Sects
- List of and how to apply for one of the 14 Hardship Exemptions
Only Can Request When Filing Federal Return
- Coverage is considered unaffordable
- Short coverage gap
- Two or more family members’ aggregate cost of self-only employer sponsored coverage is more than 8% of household income
- Member of Health Care Sharing Ministry
- Members of Federally Recognized Indian Tribe
- 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:
- Form 8965 instructions – Types of Coverage Exemptions on page 3
- 2017 Tax Year Exemptions page on healthcare.gov
- Individual Shared Responsibility Provision – Exemptions on the IRS website.
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)
- Look up what the total 2017 premium is for the Marketplace’s second lowest cost (silver) level coverage (benchmark plan)
- 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
- 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.
- 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
- An additional tax if the subsidy amount is greater than the premium tax credit
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):
- $695 for taxpayer, spouse, and dependents over age 18
- $347.50 for each dependent under age 18
- The maximum family flat dollar amount $2,085.