Healthcare

Obamacare Adds New Levels of Complexity to Tax Returns

Obamacare Adds New Levels of Complexity to Tax Returns

The Affordable Care Act (ACA), known as Obamacare, together with associated health insurance premium subsidies in the form of a premium tax credit (PTC) and individual penalties for not having health insurance has widespread ramifications affecting all taxpayers.

One critical aspect of Obamacare is the need to understand the new, significant and complex additional reporting requirements for the 2014 tax return. Beginning January 2015, taxpayers will have to deal with an array of new forms provided by their insurance companies, employers and the Insurance marketplace, in order to prepare their tax returns.

There is a myriad of requirements that these forms, that are also filed with the government, have to comply with, as follows:

  • Provide evidence of ACA compliant monthly insurance coverage for all family members included on their 2014 tax return to avoid penalties for the lack of insurance;  
  • Provide information to the IRS related to the premium subsidy, also known as the advance premium tax credit (APTC) the taxpayer was credited for when obtaining a health insurance policy from a government insurance marketplace (exchange). These amounts are used to establish if a taxpayer is entitled to an additional PTC or if required to repay a part of the APTC. The insurance marketplace will provide this data on a Form 1095-A. Private insurance businesses are required to provide proof of coverage on Form 1095-B.

This may be a complicated, extensive process if the taxpayer's family or household income is modified during the year and the change has not been communicated to the insurance marketplace. If the taxpayer married or divorced during the year or included an individual they can not claim their tax return on their insurance policy, the APTC must be allocated by the month and assigned to the affected taxpayers.

To further complicate the process, the IRS allows both employers and insurance companies to utilize substitute forms for providing the required information for 2014, which means that taxpayers need to be very careful to substitute reporting not mentioned in the IRS legal documents.

The new reporting and allocating requirements substantially increase the complexity of 2014 tax returns, particularly for taxpayers who qualify for the PTC and those who were credited with APTC by the insurance marketplace. Because of this complexity many taxpayers will need the help of a tax professional this filing season.

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Lee Reams, BSME, EA

Lee Reams, BSME, EA

Editor-in-Chief

Besides his role at CountingWorks as an educator and speaker to thousands of accountants nationwide, Lee manages a technical research service for a large group of tax accountants which sharpens his technical skills. Lee served on the Board of Blackline Systems, is a former Board of Director for the California Tax Education Council, is a Past President of the San Fernando Valley Chapter of Enrolled Agents, Member and Past Director for the California Society of Enrolled Agents.

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