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The New Health Insurance Requirements and Your 2014 Federal Income Tax Return

Doug-Cahoy-headshotWhen tax time comes around in January there may be additional reporting requirements relating to your 1040.  We are currently in the middle of the first year of the mandated health insurance coverage for individuals.  The new mandate includes the calculation of possible tax credits or tax penalties related to your health insurance coverage during 2014.  This information will be required for the preparation of your tax return that will be due April 15, 2015.  The following information contains the highlights:

  • Who is required to have health insurance? The requirement to have health insurance coverage applies to all individuals of all ages.  This includes children.  The adult or married couple who can claim a child or another individual as a dependent on form 1040 is responsible for making the penalty payment if a dependent does not have coverage.

  • Is anyone exempt from the health insurance mandate? Yes, there are several groups that are exceptions to the requirement stated above.  They are:
    • Members of religions that are recognized as conscientiously opposed to accepting any insurance benefits.
    • Members of a recognized health care sharing ministry.
    • Members of federally recognized Indian tribes.
    • Anyone whose income is below the minimum threshold for filing a federal income tax return.
    • Anyone who has been certified by the federal “Marketplace/Exchange” as having suffered a hardship that results in the inability to obtain coverage.

Also, anyone who was without coverage for less than three consecutive months during the year will be considered covered for the entire year.

  • How much is the penalty if I don’t have health insurance?  Determining the amount of your penalty involves calculating a somewhat complex formula.  There is a shortcut method, however, that will provide a good estimate.  For 2014, the penalty is the greater of: 1) $95 times the number of un/under-insured individuals in your family or 2) 1% times your total household income.  The greater of those two numbers divided by twelve gives you the penalty amount per month for each un/under-insured person.
  • Will everyone who is insured qualify for a heath insurance tax credit? No, the credit amount is based on several eligibility criteria and the amount of the credit is based on household size and household income.
    • First Eligibility:  You will qualify for a credit if all of the following statements are true:  1) You purchased your health insurance through the Marketplace/Exchange, 2) You are not eligible for insurance coverage through an employer or government plan, 3) Your household income is below 400% times the federal poverty guideline, 4) If you are married, you are filing a joint return, and 5) You cannot be claimed as a dependent on anyone else’s tax return.
    • Credit amount:  if you are eligible to receive a credit the amount of the credit can be calculated in six steps:1. Calculate your modified adjusted household gross income, (includes tax exempt interest income, excluded social security benefits and foreign income).

      2. Determine your household size, (Taxpayer, Spouse and all claimed dependents).

      3. By using the results from step 1 and step 2, determine if you meet the federal poverty line cutoff.

      4. Based on the information in steps 1-3, look up the maximum annual premium for your household.

      5. On your state exchange website look up the premium for the second lowest cost silver plan, annually.

      6. Subtract step 4 from step 5 to determine the amount of your credit, (if negative, no credit).

      If you have been receiving “advance credits” during 2014 the amount of those advances will then be compared to the actual credit as calculated on your tax return.  If you were underpaid during the year, your tax refund will increase.  If you were overpaid during the year, your refund will be decreased.

Taxpayers who are participating in the “Marketplace/Exchange” will experience an increase in the amount of information required to complete their tax returns.  Please watch for more details when the income tax organizers come out in January 2015.

 

Doug Cahoy

Doug Cahoy

CPA, QuickBooks ProAdvisor at Ketel Thorstenson, LLP
Doug Cahoy joined Ketel Thorstenson, LLP in August of 2002. With 28+ years of experience as a CPA, he has spent many hours in the income taxation and small business auditing areas. Mr. Cahoy has significant experience in the construction, real estate, and non-profit industries, as well as personal and business taxation. He currently serves as tax manager and a Certified QuickBooks Pro-Advisor for the firm’s Spearfish office.
Doug Cahoy

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