I can feel the tax tension rising at work. Our clients’ tax preparation questionnaires are flowing in, and we’ve started planning how to ensure we have everything done by the deadline, despite it still being just under two months away.
In your preparation for filing, you’ve likely noticedsomething different about this year’s return – the shared responsibility payment. Since the Affordable Care Act (aka Obamacare) became law in 2010, provisions of the act have worked their way into everyday life. This year, you will see one of the biggest changes show up on your tax return.
I want to give a quick primer on this provision and let you know what to look out for when either preparing or reviewing your return.
What is the Shared Responsibility Payment?
One of the most talked about provisions of Obamacare was the individual mandate that all citizens and legal residents must have health insurance by January 1st 2014. If you didn’t have health insurance last year, you will incur a penalty (or additional tax as the Supreme Court likes to look at it), known as the shared responsibility payment, when you file your return.
For 2014, the payment is the greater of 1% of the household’s income above the taxpayer’s filing threshold or $95 per adult plus $47.50 per child (limited to a family maximum of $285).
Are You At Risk For Having to Make the Shared Responsibility Payment?
Despite all of the hoopla around the provision and the penalty, tax, or whatever you want to call it, the vast majority of us will only have to check a box on our return verifying that we have qualifying health insurance coverage. The IRS anticipates that over 100 million filers will already coverage and thus satisfy the shared responsibility requirement.
In short, have insurance? Check the box and move on. Click here, for more information of what counts as “qualifying health coverage”
What Happens If You Didn’t Have Insurance?
Even if you didn’t have insurance, you may still get out of making the shared responsibility payment. You may qualify for a coverage exemption. You can obtain an exemption through the Healthcare Exchange (also known as the marketplace), and they will send you an Exemption Certificate Number to put on your return. Or you can qualify for an IRS exemption, such as you didn’t have a gap of more than 3 months without coverage or suffered a hardship.
As I mentioned, the vast majority of people will either have qualifying coverage already or qualify for an exemption. However, if you don’t fall into one of those two categories, and you obtained coverage from the Health Care Exchange, your return may become a little more involved because of the Premium Tax Credit. More on that next time.