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How Has the Tax Cuts and Jobs Act Affected the Affordable Care Act?

Since the Affordable Care Act (ACA) was passed, there has always been confusion: who needs coverage and who is exempt, how much and when are penalties imposed, and what are the employer’s responsibilities?  To make matters more complicated, the Tax Cuts and Jobs Act (TCJA) included a modification to ACA that many people may easily misinterpret or completely miss in light of the numerous other changes.

The goal of the ACA was to ensure all individuals and their dependents have access to minimum essential coverage that is “affordable” to them. This could be obtained through their employer, the Healthcare Marketplace, or directly through insurance agencies.  If someone did not have qualified coverage and did not meet an exemption such as a short gap in coverage or they were under the poverty threshold, they would face a penalty.  The penalty itself was a confusing calculation. Essentially the penalty was the greater of a) $695 for each adult per year (1/2 that for each dependent) or b) 2.5% of the taxpayer’s household income over a threshold amount.

There are two major changes in the TCJA that affect the ACA.  First, the penalty explained above is permanently repealed effective January 1, 2019.  This essentially makes obtaining health insurance coverage a voluntary action as there is no longer a penalty associated with not being covered.  Second, for the first time since the ACA was enacted, the IRS is now requiring taxpayers to specifically state they had minimum essential coverage.  In prior years, this portion of your return could be left blank without repercussions.  Starting January 1, 2018, this must be disclosed or the tax return could be rejected and the taxpayer may be assessed the individual mandate penalty.

Since this is not effective until 2019, you must maintain coverage for yourself and your dependents if you do not qualify for an exemption listed in the ACA, or face a penalty.  Further, the ACA itself is not repealed, only the penalty associated with minimum essential coverage has been. Two important conclusions from that are 1) the Marketplace and the premium tax credits are still available if you qualify and 2) none of the requirements for employers have changed.  Employers with more than 50 full-time equivalent employees are still required to offer affordable minimum essential coverage and meet reporting requirements such as 1095-B and 1094/1095-C.  Failure to do so will result in penalties to the employer that have not been repealed.

For further answers to your questions, don’t hesitate to contact the Tax Team at KTLLP.

Kim Richters

Kim Richters

Kim is an Associate in the Tax Department in the Rapid City office.
Kim Richters

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