The IRS has recently issued new Publication 5187 (Health Care Law: What's New for Individuals and Families) to cover some of the tax provisions of the Affordable Care Act (ACA). The Publication also explains how taxpayers satisfy the individual shared responsibility provisions (ISR) of the ACA. These provisions will result in complex calculations, and new tax return entries.
Who is subject to the ISR rules?
All U.S. citizens are subject to the IRS rules, as are all non-U.S. citizens who are in the U.S. long enough during a calendar year to qualify as resident aliens for federal income tax purposes. Under the provision, a taxpayer is potentially liable for him or herself, and for any individual the taxpayer could claim as a dependent for federal income tax purposes. Thus, all children generally must have minimum essential coverage or qualify for coverage exemption for each month in the year. Otherwise, the primary taxpayer(s) (e.g. parents) who can claim the child as a dependent for federal income tax purposes will generally owe an individual shared responsibility payment for the child.
Foreign nationals who live in the U.S. for a short enough period that they do not become resident aliens for tax purposes are exempt from the ISR provision even though they may have to file a U.S. income tax return.
What must be reported on the tax return?
All individuals subject to the ISR rules use their 2014 federal income tax return to:
- Report that they have qualifying health care coverage (also called minimum essential coverage), or
- Show they qualify for an exemption from coverage, or
- Make an individual shared responsibility payment.
What is minimum essential coverage?
Under the ACA, minimum essential coverage is a health care plan or arrangement specifically identified in the law as minimum essential coverage, including:
- Specified government-sponsored programs (e.g. Medicare Part A, Medicare Advantage, most Medicaid programs)
- Employer-sponsored coverage under a group health plan (including self-insured plans)
- Individual market coverage (e.g. a qualified health plan purchased through the Marketplace or individual health coverage purchased directly from an insurance company)
- Grandfathered health plans (in general, certain plans that existed before the ACA and have not changed since the ACA was passed)
- Other plans or programs that the Department of Health and Human Services recognizes as minimum essential coverage for the purposes of the ACA
What are the health coverage exemptions?
The following is a partial list of exemptions:
- Unaffordable coverage – The amount the taxpayer would have paid for the lowest cost employer-sponsored coverage available or for coverage through the Marketplace is more than eight percent of the taxpayer’s household income for the year.
- Short coverage gap – The taxpayer went without coverage for less than three consecutive months during the year.
- Household income below the return filing threshold – The taxpayer's household income is below the taxpayer's minimum threshold for filing a tax return.
- Members of a health care sharing ministry – The taxpayer was a member of a health care sharing ministry, which is a tax-exempt organization whose members share a common set of ethical or religious beliefs and have shared medical expenses in accordance with those beliefs continuously since at least December 31, 1999.
- Incarceration – The taxpayer was in a jail, prison, or similar penal institution or correctional facility after the disposition of charges.
The upcoming tax season will be complicated by these ISR provisions. Should you have any questions, please contact your Marcum Tax Professional.
|A special thanks to article contributor Eugene Kim, Tax & Business Services.|