The Affordable Care Act (often referred to as Obamacare) was upheld by the Supreme Court in a 6-3 vote last Thursday. Chief Justice John Roberts stated in the majority opinion "Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. This strengthens, if not decides, the likelihood that the Act will continue on even after President’s Obama departure from office in 2017.
Obamacare was met with mixed emotions with many believing it raised costs for middle-class Americans and small businesses. We saw firsthand individual mandate costs surprising many clients who underestimated their income on the health insurance marketplaces. Understatement of income led to an advance premium tax subsidy (or credit) that was required to be paid back in part or in full when income came in higher than expected. Others accepted the penalty and knowingly forewent health insurance this year since the penalty was significantly less than the cost of their increased coverage costs. Going forward this penalty will not be referred to as a mandate, but a tax for those that opt out of health insurance.
Whether you support the ruling or not, there are health insurance compliance items that are now parts of the individual income tax return. Everyone who received an insurance plan through the health insurance marketplaces should have received a Form 1095-A reporting the details of their coverage. This form is used to file Form 8962 on the individual income tax return which calculates the amount of premium tax credit allowed. If you received health insurance through the marketplace, please review your 2014 return to make sure this form was filled out. We have already had inquiries from individuals who did not use a professional tax service that omitted this form on their tax return and received an IRS notice. We recommend if you choose to use the available health insurance marketplace to estimate income conservatively. Like with income tax withholding and estimated tax payments, severely underpaying for health insurance throughout the year can lead to an unwelcomed surprise during tax filing time.