Essential Tax Forms for the Affordable Care Act (ACA)

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The Internal Revenue Service (IRS) has introduced a number of essential tax forms to accommodate the ACA: Form 1095-A, Form 1095-B, Form 1095-C, and Form 8962.

• The 1095 series for information
• Form 8962 for tax credits
• Second part of Form 8962

• Penalties and exemptions

Key Takeaways

• The IRS created three new forms, 1095-A, 1095-B, and 1095-C, to help taxpayers comply with the new health care law.
• Form 8962 is used to determine eligibility for the Premium Tax Credit and how much of a credit you are entitled to.
• You can use the credit to reduce your taxes or reduce your monthly insurance payments.
• For tax years prior to 2019, there is a penalty for not having health insurance, but you may be able to avoid it by qualifying for an exemption.

The 1095 series for information

The IRS has created a new batch of forms, the 1095 series, to help handle some of the requirements of the new health care law. If covered by health insurance, you can use the information from the following three 1095 statements when preparing your taxes:

• Form 1095-A is the Health Insurance Marketplace Statement. You'll get this version if you bought health coverage through the "Marketplace"—the web-based insurance markets that the federal government and states set up under the ACA.
• Form 1095-B is a statement from your health insurance company verifying that you and other members of your household have insurance coverage that meets the requirements of the ACA. This is for people whose insurance comes from a source other than the Marketplaces.
• Form 1095-C is a statement from an employer providing details about employer-sponsored health insurance benefits.

Many taxpayers will receive both 1095-B and 1095-C. Depending on how your employer-sponsored insurance is set up, you may receive "B" and "C" on a single combined form.

Form 8962 for tax credits

If you bought your health insurance from the Marketplace, you will file Form 8962 with your tax return. The ACA law includes a special Premium Tax Credit to help certain people pay the costs of health insurance, and Form 8962 relates to that credit. Use the first part of the form to determine whether you're eligible for the tax credit and, if so, to figure out how much of a credit you're entitled to. When you qualify for the tax credit, you do have a choice in how you receive it:

• You can use the credit to reduce your taxes. If you choose this option, you claim your entire credit when you file your income tax return.
• You can use the credit to reduce your monthly insurance payments. If you choose this option, the government pays money to your insurer over the course of the year, and you pay less for health insurance each month.

TurboTax Tip:

Beginning in 2019, there is no longer a penalty for not having health insurance.

Second part of Form 8962

If you do qualify for the Premium Tax Credit, you can use the second part of FORM 8962. This portion compares your total available credit to the amount of money the government paid your insurer over the course of the year to reduce your premiums. Some key points to keep in mind:

• If you chose not to use the tax credit to reduce your premiums, you can use the full credit now to reduce your taxes
• If the amount the government paid to reduce your premiums turns out to be less than your total credit, you can use the difference to reduce your taxes when you file your taxes
• If it turns out that the government paid your insurer more than the total value of your credit, you'll have to repay the difference when you file your taxes (The American Rescue Plan Act of 2021 suspends this requirement for tax year 2020).

When you buy health insurance from the Marketplace, you provide information about your income, and the government uses that information to calculate how much it will pay your insurer. Changes in income during the year can affect your eligibility for the credit—and that's why you might end up either having credit "left over" or having to repay some of your credit.

Carrie McLean, director of customer care for eHealth, the nation's largest private online health insurance exchange, advises anyone using the Premium Tax Credit to help pay their monthly insurance payments to report changes in income immediately to the Marketplace. "If you earn more than expected, you may need to adjust your subsidies midyear or else repay all or part of your subsidies," McLean says.

This is especially relevant for the self-employed and other individuals whose incomes may contain a large variable element," adds Mathew Dahlberg, a financial planner with 111th Street Investments in Kansas City. "It is very important that they either accurately estimate their income or, alternatively, set aside funds as they earn them throughout the year" so they can repay the credit if necessary.

Penalties and exemptions

For tax years prior to 2019, the penalty for not having health insurance is paid on your tax return itself. However, even if you don't have insurance, you may still be able to avoid paying the penalty by qualifying for an exemption. Exemptions can be claimed two ways:

• Some are claimed directly on your tax return. These include exemptions for going uninsured for less than three months or because you cannot find affordable insurance.
• Some are available only by applying to the Marketplace. These include exemptions for membership in religious groups that object to insurance and for certain financial hardships.

A few exemptions can be claimed both ways. When you receive one from the Marketplace, though, you'll receive an "Exemption Certificate Number." You must provide this number to avoid the penalty. File Form 8965 with your tax return to report your number.

Beginning in 2019, there is no longer a penalty for not having health insurance.

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