The Affordable Care Act and Income Taxes

 This year the Affordable Care Act (commonly called “Obamacare”) requires everyone to have health insurance or to pay a Shared Responsibility Payment (commonly called a penalty).  This transaction, along with the receipt and reconciliation of federal subsidies to help make health insurance more affordable, all takes place within the user-friendly environment of filing your federal income taxes.

OK – not so user-friendly.  In the spirit of tax forms everywhere, the new forms for filing are equal in complexity to the law that they were invented to enforce.  The good news – once we tax preparers figured them out, they’re really not so bad.

Here’s what the Affordable Care Act means as you file your 2014 tax returns.

1.  If you have health insurance from any source other than the Marketplace (healthcare.gov), all you have to do is check a box.  Done.

2.  If you have health insurance through the Marketplace, the Marketplace sends you a form 1095-A.

This lists the subsidies (if any) that were paid directly to the insurance carrier to supplement your monthly payment.  Did you receive too much in subsidies?  Too little?  You’ll reconcile this on form 8962 of your tax return.  If you were paid too much, the overpayment will be subtracted from your refund (or added to the amount owed.)   If you were paid too little, the amount underpaid will be refunded to you (or subtracted from the amount owed.) 

3.  If you did not have health insurance, your Shared Responsibility Payment (SRP) will be calculated on a worksheet that accompanies form 8965 of your tax return.  The SRP is calculated on a monthly basis for each month you or any of your dependents did not have health insurance.

But wait!  There are a number of exemptions to the requirement for health insurance.  If you or any of your dependents qualify for an exemption, it is recorded on form 8965.  If your income is below the level for filing income taxes, or if your income is below 138% of the federal poverty level in a state that didn’t expand Medicaid, you qualify.  You also qualify if your coverage gap is fewer than three months, or if your coverage gap is a result of the less-than-stellar initial rollout of healthcare.gov.  The full list of exemptions and their codes can be found at http://www.irs.gov/pub/irs-pdf/i8965.pdf.  Note that this list of exemptions applies only to your 2014 return; the exemptions and the process for qualifying for exemptions are expected to change for the 2015 tax season.  The SRP is expected to go up for the 2015 tax season.

This year’s tax season has been eye-opening to me as a preparer as well as to our clients.  Some, who knew last year that they were too poor to qualify for subsidies on the marketplace, were relieved that they would be granted an exemption while our state legislature makes decisions on dealing with the coverage gap from not expanding Medicaid.  Some clients found out during our tax preparation session that they would be assessed the Shared Responsibility Payment this year and next year, and that they were too late to enroll for 2015 coverage, as open enrollment closed on February 15.

Will Utah implement a program to cover the uninsured that are too poor for healthcare.gov but too wealthy for Medicaid as it currently exists.  Will the federal government extend the open enrollment period for healthcare.gov to make it align with tax season?  The adventure continues…

Volunteer Income Tax Assistance (VITA)

Many retirees – and non-retirees – look for a meaningful way to give of their spare time in service to others.  My husband, who retired eight years before I did, found the Volunteer Income Tax Assistance (VITA) program a few years ago.  VITA is an IRS-sponsored program, funded (at least in Utah) through the Community Action Program.  Its purpose is to provide income tax preparation, free of charge, to low income individuals and couples.  I joined “Team VITA” this past tax season.

“Now let me get this straight,” you may ask. “You do other peoples taxes for free?  And you like it?”

The answers are yes, and surprisingly, yes. 

Our clients are low income families, many headed by single mothers.  Our clients include the disabled.  And our clients include fellow retirees. 

It is humbling to see how these families get by on what appears to me to be so little income.  It is rewarding to see the gratitude on the face of a single mother when I tell her that her refund, including the Earned Income Credit and the Child Tax Credit, is far more than the amount withheld from her paychecks.  And it is encouraging to see retirees with pensions – since I’ll never see pension income. 

To volunteer, you need to pass two tests on the tax code and learn the TaxWise software used at VITA sites.  The program offered classes and/or self-study.  Of course, as most of you have already experienced, taking a class or two doesn't make you an expert in anything.  This is especially true of the US Tax Code, which is anything but simple.  I learned far more actually doing the tax preparation – mistakes and all – than I did in the classes. 

Yes, I made mistakes.  Lots of them.  Some, if uncorrected, could have cost the taxpayers hundreds of dollars in unclaimed refunds.  As one of the new kids at our site, I was grateful for the experienced volunteers’ quality review of my work – and for their subsequent explanation to me of what I had done wrong.  At VITA sites, every return is quality reviewed by another preparer – to catch little mistakes like a transposed employer ID or direct deposit account numbers, and to catch bigger mistakes like checking the wrong radio button on the EIC worksheet and costing the taxpayer their Earned Income Credit.

So to those taxpayers on whose returns I made errors, I thank you.  I will be a better preparer for it.

Was VITA worth my time?  Absolutely.  I’ll do it again next tax season.  If you’re interested in volunteering, search the web for VITA in your city or state, as volunteers are coordinated at the local level rather than at the federal level.