Many classify the Affordable Care Act (ACA) as a health care law and that’s that.
Truth be told, the ACA is just as much a tax law as it is healthcare reform law.
Whether you call it the Affordable Care Act or Obamacare (they are the same thing), the law has stirred up all kinds of controversy – notably, marketplace enrollees who pre-qualified for subsidies applied against their monthly insurance premiums.
WHO QUALIFIED FOR PREMIUM TAX CREDITS?
According to IRS regulations, income must have been between 100-400% of the Federal Poverty Line (FPL) depending on filing status. The 2014 income limits were based on the 2013 FPL.
| Family Size | 100% FPL | 400% FPL |
| Single, individual | $11,490 | $45,960 |
| Family of two | $15,510 | $60,040 |
| Family of four | $23,550 | $94,200 |
HOW DOES THE RECONCILIATION WORK?
This is where things get complicated.
The subsidies are essentially advanced tax credits based on an enrollee’s estimated income. All marketplace enrollees receive a Form 1095-A listing who in their household had coverage, what months they had said coverage, the amount of their premium and the amount of any subsidies received. This information is used to complete Form 8962, for information related to insurance, subsidies and will also reconcile the advanced premium payments received to the actual premium tax credit for which the individual or family qualifies.
If an enrollee greatly underestimated their income, and therefore received a higher advanced subsidy than they actually qualified for, they may have found themselves with a reduced tax refund or even having taxes owed to the IRS. For example, if an individual received advanced payments totaling $4,000, but after completing Form 8962, qualified for only $3,000, the difference of $1,000 is entered onto their Form 1040. Depending on their situation this can create a balance due to the IRS, increase a balance due, or reduce a refund amount.
WHAT IF I DIDN’T HAVE COVERAGE?
Those who remained uninsured in 2014 faced penalties of $95 per adult or $47.50 per child (up to $285 for a family) or 1% of their adjusted gross income, whichever the greater. These penalties will rise to $325 per adult or $162.50 per child (up to $975 for a family) or 2% of the adjusted gross income, whichever the greater, for 2015 (these penalties are also subject to thresholds).
2014 Examples
Scenario A: A single person, with no dependents, made $40,000, but had no insurance coverage for the entire 2014 calendar year and did not qualify for an exemption.
Filing Threshold: $10,150
| Item Calculation | Amount |
| Income | $40,000 |
| Threshold | – $10,500 |
| Subject Income | $29,850 |
| Penalty 1% | x 0.01 |
| Total | $298.50 |
$298.50 is the penalty to be paid (greater than $95).
Scenario B: A married couple with two children under 18 had no insurance for the entire 2014 calendar year and did not qualify for an exemption. The couple had an adjusted gross income of $70,000.
Filing Threshold: $20,300
| Item Calculation | Amount |
| Income | $70,000 |
| Threshold | – $20,300 |
| Subject Income | $49,700 |
| Penalty 1% | x 0.01 |
| Total | $497.00 |
$497 must be paid by the taxpayers for failure to have coverage (greater than $285).
Did you have to pay back your Premium Tax Credit and have questions? Contact us today and we can help!