The Impact of ACA on 2014 Taxes
The Affordable Care Act (ACA) has been in full swing for several months. Let’s take a look at the impact for the 2014 tax filing season.
January of 2014 saw the ACA officially go into effect. Enrollment was impacted due to issues with Healthcare.gov web site’s ability to handle the demand. However, the initial enrollment period ended and we are now operating under the new law. Everyone was impacted by the ACA; businesses and individuals alike. However, some of the initial rigor has been delayed for businesses.
Businesses are not required to offer healthcare coverage to their employees. However, some businesses may have to make a payment starting in 2015. Businesses with more than 50 employees are deemed to be a “large” company and are, therefore subject to the Employer Shared Responsibility Payment (ESRP). Businesses with fewer than 50 employees are not required to make the payment. However, these smaller businesses are allowed to participate in the Small Business Health Options (SHOP) Marketplace. And businesses with fewer than 25 employees that purchase through SHOP may qualify for a tax credit.
To determine whether or not a company is categorized as large, the look back is to the preceding calendar year. The ESRP will take effect in 2015 for businesses with greater than 100 employees and in 2016 for businesses with greater than 50 employees. To avoid payment, employers need to offer coverage to 70% of the full-time employees in 2015 and 95% in 2016. It is important to understand that these are the general provisions of the ACA and there are special circumstances and the Affordability Safe Harbor Provision that may impact a particular business’s compliance situation.
Many employers are responsible for notifying new employees about the Health Insurance Marketplace. This notification is required whether employees are full or part-time employees. The notification must inform employees:
- About the Health Insurance Marketplace
- That coverages on the Marketplace could be less expensive than their employer-offered insurance depending upon the coverage level they choose and the level of their income
- That purchases through the Marketplace could trigger the forfeiture of any employer contributions to their health care
The expectation is that individuals and families that can afford health insurance coverage will purchase it. Those who opt not to purchase coverage must pay the individual shared responsibility payment. This fee will either be 1% of annual income or $95 per person for the year, whichever is greater. Uninsured children are $47.50 per year. Under the “per person” method, the most a family will pay in the 2014 tax year is $285.
There are cases where the individual responsibility payment can be averted through an exemption. These exemptions come in two general classes 1) general exemptions and 2) hardship exemptions. Examples are general exemptions are:
- Your uncovered period was less than 3 months
- Your income level is too low and you don’t have to file a tax return.
- The lowest coverage premium is greater than 8% of your household income
Examples of hardship exemptions include:
- Being homeless
- Receiving a shut-off notice from a utility company
- The recent death of a close family member
- Having medical expenses you couldn’t pay in the last 24 months that caused substantial debt to your family
These lists are not exhaustive and there are additional circumstances that may qualify for an exemption.
TAX FILING IMPACT
There are multiple forms used to communicate coverages offered and provided to employees. These forms are either reported to the IRS or sent to enrollees.
- Form 1095-A; Provided by ACA Exchange to Individual Enrollees
- Form 1095-B; Provided by Employers to Employees
- Form 1095-C; Provided by Employers to the IRS
Individuals and families that have received or will receive a subsidy will file Form 8962 (“Premium Tax Credit”) and that information will flow to line 46 of Form 1040. Those claiming an Individual Mandate exemption will file Form 8965 (“Health Coverage Exemptions”).
The bottom line is the ACA is in full effect and we all must be prepared for the financial and tax implications to small businesses and families. The penalty for individuals and families failing to obtain minimum essential coverage is 1% for 2014. That penalty increases to 2% in 2015, 2.5% in 2016, and will be adjusted upward for inflation after that. Penalties for businesses are likely to increase over time as well. We’ll continue to monitor any updates from the Department of Treasury and the Internal Revenue Service on changes to filing requirements and extensions to comply with the law.