With the passing of the Affordable Care Act, reporting of healthcare coverage has become extremely complex. There has been an increased outflow of notices distributed by the Internal Revenue Service for incorrect and omitted reporting and reconciliation of healthcare coverage on individual tax returns.
As a taxpayer, what information do you need when filing your tax return and how can you avoid getting a healthcare related tax notice?
Below are the A-B-C’s of healthcare reporting forms:
A. Form 1095-A is issued by the Health Insurance Marketplace (commonly known as The Exchange). This form provides information such as the monthly enrollment premiums and the advance payment of the premium tax credit for those enrolled in the plan. This information is required to be reported on Form 8962 of your tax return, which reconciles the amount advanced to the amount owed or due. These amounts will vary from year to year, and are based on household size, adjusted income, and how that compares to the federal poverty level.
B. Form 1095-B is issued by small employers with self-insured health plans and by insurance providers of small group plans. This form is used to confirm that the taxpayer, and dependents (when applicable), were enrolled in said plan for the stated months.
C. Form 1095-C is completed by employers who have over 50 full-time employees, regardless of whether or not they offered insurance. Certain information presented on the form will indicate whether the company offered insurance, if it was affordable, and if the employee enrolled in the coverage. This form is used to address companies that are in noncompliance with offering coverage while also serving as proof of insurance for employees.
In some cases, you may receive multiple forms for one year. Example: Joe worked full time for Small Company Z from January – July of 2015, and was enrolled in the self-insured employer provided health insurance coverage. At the end of July, Joe left Company Z and became unemployed, but obtained health insurance through the Marketplace for the remainder of the year. Joe can expect to receive two forms: 1095-B for January – July, and 1095-A for August – December.
There are also instances where taxpayers have not been covered for multiple months during the year. In this case, unless an exception applies, the taxpayer will be subject to the individual shared responsibility premium for months without coverage, which is reported, calculated, and due with the annual tax return.
As a taxpayer, it is imperative that you are aware of and understand your health insurance coverage for yourself and your dependents. Errors in reporting can lead to notices being issued to you by the IRS, and can often lead to additional amounts owed with the filing of your income tax return.
Consulting with your tax advisor can help you become more educated on the potential penalties and reporting requirements.