May 22, 2015 12:17 pm

5 Things to Know About Health Coverage for Your 2014 Return

The Affordable Care Act (ACA) imposes an individual mandate starting in 2014: carry minimum essential health coverage for you, your spouse, and dependents under age 18 or pay a penalty. The penalty does not apply for anyone who qualifies for an exemption from the individual mandate. Income tax returns for 2014 incorporate the new health care requirement. Here are 5 things to know:

1.     Check the box to indicate having minimum essential health coverage.

This is simply a check mark in the box on line 61 marked “Full-year coverage” to show that you, your spouse, and any dependent under age 18 had required coverage throughout 2014. No substantiation for this is required; no other entry is made on line 61 if you check the box.

2.     Claim an exemption if coverage is lacking.

If you do not have a government plan (e.g., Medicare) or coverage through an employer and failed to purchase your own coverage, you won’t be penalized if you claim an exemption. This is done by filing new Form 8965 with your tax return to indicate which exemption you’re claiming.

3.     Claim the premium tax credit.

If you purchased coverage through a government marketplace, you may be eligible for a refundable tax credit (a subsidy) to help defray the cost. This is done by completing new Form 8962 and entering the amount on line 69 of Form 1040.

If you claimed the credit at the time you purchased the coverage through a government marketplace (i.e., you applied the credit toward premiums), you must still complete this form to make sure the credit amount was correct. The amount to which you are entitled could have changed due to changes in the makeup and income of your household. If you received a greater credit than you are entitled, the excess is reported as a tax you owe on line 46 as an excess advance premium tax credit repayment.

4.     Figure the penalty.

If you lacked coverage for any month and are not eligible for an exemption, you owe a shared responsibility payment. This is entered on line 61 of Form 1040. Complete Form 8965 (the same form for claiming an exemption) to determine your penalty amount.

5.     Follow basic rules for deducting coverage premiums.

Other than the requirement to have coverage, a new tax credit to help pay for it, and a penalty for not having coverage, the basic tax rules for medical expenses continue to apply:

  • You can deduct premiums and unreimbursed medical expenses as an itemized deduction. Only total costs over a threshold amount (10% of adjusted gross income for most taxpayers; 7.5% of AGI for those ages 65 and older).
  • Self-employed individuals can deduct 100% of their premiums from gross income. Then unreimbursed medical expenses are deductible as itemized deductions, subject to the threshold above.
  • Contributions to health savings accounts are deductible from gross income up to set limits for those who have high-deductible health plans (generally a bronze policy).

Conclusion

The Affordable Care Act has complicated tax return preparation and these complications first appear on 2014 income tax returns. For more information about the individual mandate, see J.K. Lasser’s Your Income Tax 2015 and IRS Q and As at www.irs.gov/uac/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision.

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Tax Glossary

Lump-sum distribution

Payments within one tax year of the entire amount due to a participant in a qualified retirement plan. Qualifying lump sums may be directly rolled over tax free, or, in some cases, are eligible for current tax under a favorable averaging method.

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