Newsletter – January 2016
How health insurance will affect 2015 individual income tax returns
The Affordable Health Care Act of 2010 is now in full swing. Many of the provisions affecting an individual taxpayer’s income tax return took effect in the 2014 tax year. In 2014 all individual income taxpayers were required to report if they had health insurance coverage for the year. If they did have coverage it was not a problem. However, if they did not have coverage they could have been subject to a penalty. In addition, if taxpayer’s received health insurance through a health insurance exchange there were additional reporting requirements. For the tax year 2015 the requirements are about the same but there have been a few changes and that is what is going to be discussed here.
Increased penalty
For the tax year 2015 all individual income taxpayer’s who file an income tax return are required to report if they had health insurance for the year. For taxpayer’s that did have health insurance for the entire year they will check a box stating that they had health insurance for the entire year. If they did not have health insurance at all for the year then the taxpayer could be subject to a penalty. The first step is to check if the taxpayer is subject to any penalty exemptions. If there are no exemptions then the taxpayer would have to pay a penalty. The penalty for 2015 is higher than the 2014 penalty. The 2015 penalty is the higher of 2% of the taxpayer’s modified adjusted gross income or $325.00 ($167.50 per each dependent). This is significantly higher than 2014. The projected penalty for 2016 will be double the size of the 2015 penalty.
Enforcement
For the most part in 2014 the IRS did not enforce the penalty for failure not to have health insurance. Essentially a taxpayer could have reported that he or she did have health insurance for the year when indeed they did not and the IRS did not have an adequate tracking mechanism in place to check if taxpayer’s had health insurance or not. Therefore the IRS did not have the ability to adequately audit to check if a taxpayer had health insurance. For tax year 2015 that is going to change. The IRS has now updated it’s computer system to track if taxpayer’s have health insurance. It is now incumbent on all taxpayer’s to be truthful and accurately report on their tax return if they had health insurance for the year.
Health insurance exchanges
Because the tax year 2014 was the first year that the government required taxpayer’s to report if they had health insurance and also to report if they received any subsidies from the government there were many problems in reporting from the exchanges on taxpayer’s who received subsidies. In essence it was a very difficult year for taxpayer’s and for tax preparers in this area. However, 2015 is a new year and the IRS and the exchanges have made many changes in software and reporting requirements that should make this year a much better year for reporting health insurance received from an exchange.