Affordable Care Act: Reconciling 2014 and Planning for 2015

By Tamara Borland, Managing Attorney of Iowa Legal Aid’s Low-Income Taxpayer Clinic

Enrollment is just around the corner for insurance through the Affordable Care Act (ACA). It starts November 15, 2014 and concludes on February 15, 2015. Iowa Health Insurance Marketplace is open 24 Hours a day. Persons wishing to apply can call 1-800-318-2596 or visit www.Healthcare.gov.

Who is the Marketplace for?

  • People without insurance.
  • People who have insurance and they are not sure it covers all the right things (minimum essential coverage), it is too expensive (not affordable), or it doesn’t offer enough value (minimum value). The marketplace can look at the plan and determine whether the insurance meets all the requirements.

Who may claim the Premium Tax Credit?[1]

Persons with income up to 400% of poverty who are not:

  • Eligible for affordable workplace coverage that provides minimum essential coverage and minimum value,
  • Covered under other government coverage such as Medicaid, CHIP, Medicare, or Tricare,
  • Immigrants without documentation/ authorization,
  • Incarcerated (post-conviction), or
  • A dependent of another taxpayer.

How does the applicant receive the Premium Tax Credit?

If applied for through the health marketplace, the full credit can be claimed in advance and monthly payments will be made directly to the insurance company. An applicant can ask to receive only a portion of the credit in advance and can claim the remainder on his or her tax return.

Tax Filing Obligation-Reconciling the Credit

Anyone who receives the premium tax credit in advance has to file a federal tax return for the tax year in question whether or not he or she normally has a filing obligation. This is because the advanced credit is based upon predicted household and income information whereas the final premium tax credit is based upon actual household income and household composition. Households should update the Marketplace if there are changes to income or changes in the household. Some persons may have to repay part or all of the advance credit and some persons will qualify for additional credit.

What if my client didn’t have health insurance for all of 2014?

A taxpayer and his or her dependents that did not have health insurance can be subject to an Individual Shared Responsibility Payment.[2]

Exemptions claimed thru the Marketplace[3]?

  • Members of certain religious sects,
  • Members of certain health-care sharing ministries,
  • A person who is incarcerated post-conviction,
  • A person lacking access to affordable coverage (If applied for thru the exchange this must be done before the start of the benefit year), or
  • A person claiming other hardship.

Exemptions claimed on a tax return:

  • A person who has employer access to affordable, self-only coverage, but whose coverage for the employee’s entire family exceeds 8% of Adjusted Gross Income.
  • A taxpayer or dependent who has a short coverage gap (a gap in coverage lasting less than 3 months)
  • A person with a household income below the filing threshold. This exemption can be claimed on a tax return, but the taxpayer doesn’t have to file a return just to claim the exemption.
  • An exempt non-citizen will indicate on his or her return that he or she is not required to have insurance or pay a penalty.

Keep in mind just because one family member qualifies for an exemption that doesn’t mean everyone will.

Select Employer Provisions

Small Employer Health Options Program-SHOP

For employers with 50 or fewer employees, the employer can find a health plan through the marketplace and may be eligible for a tax credit to help defray the costs of providing insurance to his or her employees. Prior to November 15, 2014, small employers can enroll in SHOP plans through independent companies and brokers. Starting on November 15, employers will select a plan and enroll through the marketplace in order to qualify for the tax credit.

Employer Shared Responsibility Payments[4]

There are two potential “shared responsibility” penalties for large employers.

One penalty is applied where an employer fails to offer at least 70% [5](95% when the law is in full effect) of full-time employees minimum essential coverage and one employee applies for and receives the premium tax credit. The second penalty will apply where the employer offers coverage, however, an employee (or dependent) applies for and receives the premium tax credit by virtue of the fact that the coverage offered is either not affordable (Single only coverage costs greater than 9.5% of household income) or fails to provide minimum value (the Plans’ share of the total allowed costs of benefits provided under the plan is less than 60 percent)[6].

Starting in 2015, employers who have 100 or more full-time employees or “full-time equivalents:”

  • Who fail to offer at least 70%[7] of their full-time employees (and dependents) minimum essential coverage, and
  • One or more employee(s) and/or his or her dependent receives the premium tax credit through the Marketplace,
  • Will have to pay a shared responsibility payment.

If an employer has taken steps during 2014 to expand coverage to the dependents of full-time employees, the employer may qualify for transitional relief delaying the imposition of penalties for uncovered dependents for 2015.

In 2016, the “shared responsibility payments” will be assessable to all employers with 50 or more full-time employees or full-time equivalents who fail to offer at least 95% of their full-time employees (and dependents) minimum essential coverage in 2016.   If an employer with 50 or more employees either reduced its workforce, hours, or insurance coverage during 2014, the shared responsibility payments may be assessable for tax year 2015.

Iowa Legal Aid provides free legal assistance to low-income Iowans in all 99 counties with civil legal problems involving basic necessities and safety. For additional information visit Iowa Legal Aid’s websites, www.iowalegalaid.org and www.probono.net/iowa. Probono.net/iowa is a free, members only site that provides a comprehensive collection of information on legal topics, upcoming events including continuing legal education opportunities, and resources on civil law practice for members of Iowa’s justice community.

 

[1]
[1] I.R.C. 36B

[2]
[2] See, 26 CFR 1.5000A-4

[3]
[3] See, 26 CFR 1.5000A-3

[4]
[4] See, I.R.C. 4980H(a) &(b).

[5]
[5] An employer must qualify for transitional relief. In particular the employer cannot have reduced coverage during 2014.

[6]
[6] Shared Responsibility for Employers Regarding Health Coverage, 79 Fed. Reg. 8,544, 8,576 (Feb. 12, 2014).

[7]
[7] Even if an employer does not owe a penalty under 4980H(a) due to transitional relief, the employer may still owe a penalty under 4980H(b).