In addition to big changes in health care, the Affordable Care Act has also brought changes to income tax filings. And as April 15 approaches, many taxpayers will look for help from people like Aimee Sanita. She’s the owner of Circle Tax and Accounting, and for the next two months she’s figuring on 60-80 hour workweeks. Sanita recently took a few minutes out of her busy day to help Heartland Health Monitor’s Alex Smith understand how the Affordable Care Act, commonly known as Obamacare, affects people’s taxes.
How many of your clients are affected by the Affordable Care Act?
So far, it’s only been maybe 10 or 15 percent of them. A lot of people have stuff through their employer, which is good. But I anticipate that to kind of go up. We definitely have an increase in business because people don’t know what to do with it. So they in the past had filed online by themselves, done it by hand, whatever, and this year, they’ve got this new form (Form 1095-A, which is mailed to those who got federal insurance subsidies in 2014) and they don’t know what to do with it.
Do taxpayers have to prove on their tax returns that they have insurance?
Actually, there’s a box that gets checked as to whether or not you had insurance. That’s the extent of it. If they went through the marketplace, there’s an extra form that tells how much they paid for premiums if they got any kind of subsidies, but otherwise, it’s strictly the honor system at this point. You just check the box yes or no if you had insurance.
If someone does have to pay a penalty for not having insurance, how does that work?
So that is based on your income. It’s either 1 percent of your income this year, or it’s $95, whichever is more. And that can be prorated, say for part of the year and then maybe (if you) left a job and didn’t have it. Next year that goes up to 2 percent of your income, or $325.
If a taxpayer is getting a subsidy, how does that fit into their filing?
Basically, that was kind of an advance on a tax credit. So last year, they said, ‘I think I’m going to make $20,000 this year.’ And the government said, ‘O.K., well, we’re going to give you this much money toward your credit,’ and took that off their monthly premiums. This year, we have to balance that out so if they made $25,000, then the government overpaid for their amount, and they have to pay part of it back. If they’re under that amount, then they may get an additional credit because the government didn’t pay enough toward their subsidy.
Because people typically don’t estimate that well how much they’re going to earn?
Right! And most people just use last year’s tax return, because that’s what they were told to do. And just in general, people get some sort of little raise throughout the year or just tend to make a little more money each year because of inflation or whatever.
Who qualifies for an exemption and how does that work?
The exemption – there’s lots of different exemptions out there, different ways you can get out of paying the penalty if you didn’t have insurance. It just depends on what your situation was, if you couldn’t get insurance, if your income – there was kind of a hole last year where people didn’t qualify because Kansas and Missouri didn’t expand Medicaid, so there were a bunch of people that didn’t qualify for subsidies but also didn’t qualify for Medicaid. And so (if) they’re in this group because of their income, they weren’t required to have insurance.
But then there’s also lots of other little exceptions in there. I think the list is about a page long, so I can’t really go through all of them, but if you were unemployed, there’s some different exceptions in there. Or just some different hardship-type things.
And is that something a tax filer has to have documents to prove?
When you fill out the form, you say, ‘This is the exception that I’m using.’ At this point, we don’t have to send any extra documents to prove that, but it would be something you’d want to have documents, so if the government came back and asked you to prove that, you’d have that information.
Do you have any tips for people as they look at how they’re going to prepare their taxes this year?
Going forward with all the marketplace rules, I’ve recommended to people first of all to make sure, if you don’t know exactly what your income’s going to be, to almost overestimate. That way you’ll get a credit at the end; you’re not going to end up owing money.
The other thing is: you can always call and make adjustments to that throughout the year. So it you find out you get a big raise, call and make a change so that, again, you’re not owing at the end of the year.
Note: Taxpayers who didn’t receive an insurance subsidy in 2014 may still be able to receive a tax credit to help cover insurance costs. When filing taxes, Premium Tax Credit Form 8962 may be used to determine eligibility.
Alex Smith is a reporter for KCUR, a partner in the Heartland Health Monitor team.
