Health Insurance And Your Taxes: What To Know

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Taxes are different this year — don’t forget to claim your health coverage from last year.

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Filing taxes is going to be different this year for many of us. For the first time, Americans are required to pay a tax penalty if they didn’t have health insurance. Well – some are.

According to tax preparation giant TurboTax, about half of the 40 million Americans who went without insurance in 2014 will qualify for an exemption from the penalty. Whether they claim that exemption, however, is another story. Here’s what to know about your health insurance this tax season – no matter what your story is.

If You Had Insurance Throughout 2014

To reflect the new health insurance requirement, the IRS created several new forms for individuals to use to report their health insurance on their taxes, but those forms are not all in use yet. Like a W-2, they’re meant to be referenced when filling out your tax return.

The new forms “state what months the taxpayer was covered, what the premiums were and whether an advanced premium tax credit was received,” says Carrie Houchins-Witt, a certified financial planner in Coralville, Iowa, with 10 years of tax preparation experience.

They come in three versions: 1095-A, 1095-B and 1095-C. The forms you would get depend on how you got your insurance. Here’s how they correspond:

1095-A: Sent by state-run health care exchanges and the federal to those who purchased coverage through those sites.

1095-B: Sent by insurance providers to people they cover.

1095-C: Sent by employers to employees eligible for employer-sponsored coverage.

Actually, you would get them if all three forms were in play this year. The 1095-B and 1095-C are not required, though they are available on the IRS’s website. That means you’re off the hook for one more year if you got insurance somewhere besides a state exchange or If this is the case for you, claiming your health insurance this year couldn’t be easier.

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“Taxpayers will be required to state on their federal tax return whether or not they had minimal essential coverage for the whole year,” Houchins-Witt says, and that’s about all there is to it.

On the 1040 form that most people use, it’s Line 61; on the 1040EZ, it’s Line 11. Simply check the box on that line next to “Full-year coverage,” and you’ve done your part. Check back a year from now for a refresher on the new forms – they should all be required by then.

If You Had a Government Marketplace Plan

So let’s get back to those 1095-A forms, the ones that are actually required this year. If you are one of the 7 million people who got insurance through a government health care marketplace, you’ll need one of these forms before you can finish filing your taxes.

You’ll also have a new form to attach to your federal return, called Form 8962. That form “will calculate the credit a taxpayer might receive if he or she obtained health insurance through the marketplace andthe taxpayer qualifies for the premium tax credit,” Houchins-Witt says. To qualify for the tax credit and calculate it, you would have had to estimate your income for 2014 when you purchased insurance through the marketplace.

“The premium tax credit is available for taxpayers whose income is less than 400 percent of the poverty level and whose health insurance premiums are considered unaffordable, based on an IRS calculation,” she says. “If your income was different than what you estimated, you will have to recalculate your premium tax credit.”

That means you may have to pay some of the credit back if your income was higher than you estimated when purchasing insurance. You may also receive money back if your income ended up being lower than you estimated. Those who bought coverage through a government marketplace and received an accurate Form 1095-A can begin using it to complete Form 8962.

Unfortunately for about 800,000 of the people who used the federal site, their 1095-A forms contained incorrect information. If you were one of them, you should have been contacted by the Centers for Medicare and Medicaid Services, who asked all affected individuals to delay filing taxes and wait for the correct form. That new 1095-A should be sent out this week, but all affected people are eligible for a filing extension. That error affected about 20 percent of people using the federal marketplace.

If You Didn’t Have Insurance

If you didn’t have health insurance for at least nine months in 2014, you may have to pay a penalty this year. However, there are a lot of exemptions, especially for those who were unable to afford health insurance even with subsidies. About half of last year’s uninsured qualify for one of these exemptions, but not all of them will claim it.

You can see the full list of qualifying exemptions. Some of the most common exemptions are for:

People who can’t find affordable coverage. If the cheapest available premiums would have exceeded 8 percent of your income, you qualify for this exemption.

Low-income individuals and families. If your income is so low you aren’t required to file a tax return, you’re exempt from the penalty. In most cases, the filing threshold is $10,050 annually for an individual or $13,050 for a family.

U.S. citizens living abroad or holding residency abroad.

Members of Indian tribes or certain religious sects.

People with qualifying hardships. Foreclosure, death of a close family member, eviction, domestic violence and unpaid medical bills are among those that qualify.

Even if you qualify for an exemption, you must not check the box on your tax return indicating that you had full coverage. Instead, leave that box unchecked and attach Form 8965 to your return. This form details the exemptions you qualify for. Alternatively, if you’re using a software program, it should guide you through this form.

If you didn’t have insurance and don’t qualify for an exemption, you’ll be responsible for paying the tax penalty. This year, that comes out to $95 per uninsured adult and $47.50 per child in your household, or 1 percent of your income, whichever is greater. For those paying the penalty per person, rather than as a percentage, the total is capped at $285 per family.

According to TurboTax, the average penalty will be $301 this year, but it’s set to increase each year, at least for the next two years. Next year, the fee increases to $325 per adult and $162.50 per child, capped at $975, or 2 percent of income. If you owe a penalty this year, it might not be too bad, but it’s up to you to assess whether it’s worth it to take the penalty going forth, since it will rise again in 2016.

Each year, the penalty is paid along with the rest of your income taxes. If you’re set to get a refund, the penalty will be subtracted from that amount. If you owe taxes this year, the penalty will be tacked onto your total bill.