Beginning January 1, 2014, the Affordable Care Act (ACA) required individuals to carry minimum essential health coverage or make a shared responsibility payment, unless exempt. Individuals will report on their 2014 federal income tax return if they had minimum essential health coverage for all or part of the year. Individuals who file Form 1040, U.S. Individual Income Tax Return, will indicate on Line 61 if they were covered by minimum essential health coverage for 2014, if they are exempt from the requirement to carry minimum essential health coverage or if they are making an individual shared responsibility payment.

Minimum essential coverage

Minimum essential coverage is a term used to describe the type of coverage an individual needs to have to meet the individual responsibility requirement under the ACA. Nearly all individuals covered by employer-sponsored health insurance are treated under the ACA as carrying minimum essential coverage. Coverage obtained through the ACA Marketplace as well as Medicare, TRICARE and the Children’s Health Insurance Program (CHIP) qualifies as minimum essential coverage. An important exception to minimum essential coverage is coverage that provides limited benefits, such as stand-alone dental insurance, accident or disability income insurance and workers’ compensation insurance. If you have any questions whether your health coverage is minimum essential coverage requirement, please contact our office.

Exemptions     

The ACA sets out a number of categories of individuals exempt from the individual shared responsibility requirement:

• Members of Certain Religious Sects

• Short Coverage Gap

• Certain Noncitizens

• Coverage is Considered Unaffordable

• Household Income below the Return Filing Threshold

• Members of Federally-Recognized Native American Nations

• Members of Health Care Sharing Ministries

• Incarcerated individuals

• Hardships

Many of these exemptions are quite technical and have various sub-categories of exemptions. Some exemptions are available only through the ACA Marketplace, others only from the IRS and others from either the ACA Marketplace or the IRS. Please contact our office for more information about a particular exemption and how to apply for an exemption.

Shared responsibility payment

For 2014, the individual shared responsibility payment is the greater of:

• One percent of household income that is above the tax return filing threshold for the individual’s filing status; or

• The individual’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285, but capped at the cost of the national average premium for a bronze level health plan available through the Marketplace in 2014.

For 2014, the annual national average premium for a bronze level health plan available through the Marketplace is $2,448 per individual ($204 per month per individual), but $12,240 for a family with five or more members ($1,020 per month for a family with five or more members).

Here’s an example from the IRS:

Emma and Noah are married and have two children under 18. The couple did not have minimum essential coverage for any family member for any month during 2014 and no one in the family qualified for an exemption from the individual shared responsibility requirement. For 2014, their household income is $70,000 and their filing threshold is $20,300. The IRS explained that to determine their individual shared responsibility payment using the income formula, the couple would subtract $20,300 (filing threshold) from $70,000 (2014 household income). The result is $49,700. One percent of $49,700 equals $497. The couple’s flat dollar amount is $285, or $95 per adult and $47.50 per child. The total of $285 is the flat dollar amount in 2014. The family’s annual national average premium for bronze level coverage through the Marketplace for 2014 is $9,792 ($2,448 x 4). Because $497 is greater than $285 and is less than $9,792, their shared responsibility payment is $497 for 2014, or $41.41 per month for each month the family is uninsured (1/12 of $497 equals $41.41).

Please contact our office for more information about the ACA’s individual shared responsibility requirement.

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Content provided by CCH. If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.