For the first time, health insurance is showing up on tax forms causing what is expected to be the most complicated tax season in recent history. The additional tax filing paperwork this year is a result of the Affordable Care Act’s tax subsidies and requirement that virtually everyone enrolls in health insurance or pays a tax penalty.  

As independent health insurance agents, you can help your clients understand how taxes and health insurance intersect, building your credibility as a knowledgeable agent in the process. These guidelines will help you prepare your clients for a smooth tax season.

If they received a tax subsidy

Last year, 85% of ACA enrollees received government tax subsidies to make their health coverage more affordable.  Those individuals and families were granted subsidies based on their projected income for 2014, not their actual income. Now, they will need to report whether their actual income was higher or lower than the projection on their tax returns. If it was higher, then those people might owe the government money; if it was lower, then they might qualify for a larger refund. 

If they received a tax subsidy in 2014, then they must present their actual income for the year when they file their tax return. Your clients should have received Form 1095-A by early February, which will outline the exact tax subsidy amount they received.  They will need this form to file their tax return properly. 

If they had coverage and did not get a subsidy

If your clients and everyone in their household had health insurance last year, there is very little that needs to be done. They will have to report the fact that they had minimal essential coverage as outlined by the Affordable Care Act on their tax forms. They simply need to check the appropriate box on Form 1040. No further action is required.

If they did not have health insurance

If your client did not have health coverage last year, they may have to pay a fine, known as the individual shared responsibility payment. That payment amounts to 1% of a person’s household income or $95 per adult and $47.50 per child — whichever is greater. Many individuals think they just owe $95, but those with higher incomes could end up paying a much greater fine. 

You should note that the 1% fine is applied to household income after subtracting the tax filing threshold amount, which is $10,150 for an individual. For example, someone who earned $40,000 would only be fined 1% of $29,850 ($40,000-$10,150 = $29,850), so their fine would be $298.50.

There is another catch: the penalty is charged on a monthly basis once a person is uninsured for more than three months. To find out exactly how much is owed for going uninsured — whether it was four months or the entire year — use Form 8965.

If your clients do end up facing a fine, they will see it represented either as an addition to their tax bill or a subtraction from their tax refund.

What are the exemptions from the tax penalty?

Not everyone who was uninsured in 2014 will be required to pay a fine. If your clients did not have health insurance in 2014 but have a justifiable reason, they may be exempt from it.

Health coverage exemptions include being a member of a specific religious sect that opposes health insurance and not having to file a tax return due to your income level. In addition, there are also hardship exemptions, which pertain to an individual’s ability to purchase health insurance. These hardship exemptions include getting evicted from your home, facing homelessness, and filing for bankruptcy in the last six months. 

Your clients can request forms from the federal or state marketplaces in order to apply for an exemption. If they were exempt last year, they can file Form 8965 with your Form 1040 to prove it.

Next year, the tax penalty for going uninsured will increase substantially to $325 for each adult and $162.50 for each child, or 2% of income, whichever is greater. It will continue to increase the following year.

Mahoney is senior vice president of marketing at GoHealth, and Owens is general manager of agent services at GoHealth.

Register or login for access to this item and much more

All Employee Benefit Adviser content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access