When the Affordable Care Act (ACA) was enacted, there were also various tax provisions that went into effect, along with specific requirements to have health insurance. Various groups of taxpayers, including individuals, employers and other organizations, all have specific aspects of the act that apply to them. By working with your tax professional or accountant, such as Bhatia & Co, Inc, CPAs in Santa Clara, CA, you can determine how this act impacts your tax liability this year.
Individual Taxpayer
For the individual tax payer, there are some new taxes but also changes to various credits. One such credit change is the maximum adoption credit was increased. Currently, it is a non-refundable credit with a higher maximum amount, so you should check with your tax professional to determine the amount of the credit available for your adoption this year.
Additionally, contributions to the tax-free Flexible Spending Arrangement (FSA) can no longer be used to reimburse certain expenses. While these funds can be used to pay for many medical out-of-pocket expenses, over-the-counter medicine cannot be reimbursed unless a prescription is obtained. However, most other health care expenses are still eligible for reimbursement. If you have one of these accounts through your employer, you may also qualify for a carryover from the previous year.
Premium Tax Credit
Starting in 2014, families and individuals could take a premium tax credit to assist them in paying for their health insurance, as long as it was purchased through one of the Affordable Insurance Exchange or marketplace. This credit is refundable, so even those with little or no tax liability can still benefit. In addition, the credit can be paid in advance to the insurance company to cover monthly premiums.
Keep in mind, however, that if your income exceeds what you reported when applying for your insurance through the marketplace, you may have to refund some of the credit when filing your latest return. Therefore, it is important to work with your tax professional to determine if your credit claim needs to be refunded or not.
Choosing Not to Get Health Insurance
However, if you choose to not get health insurance but can afford it, then you may have to pay the individual shared responsibility payment, which can be referred to as a penalty, fine or individual mandate. You may have to pay the fee if you did not have coverage for the year you are filing in.
There is an exemption to this rule, but you need to determine with your tax professional if you would qualify for that. Otherwise, be prepared to pay the fee based on the number of months you were uninsured or if you were uninsured for the entire year.
ACA for the Employer
Companies and small businesses need to be sure that they have accurately determined their status under the Affordable Care Act. Businesses with over 50 employees may be considered applicable large employers (ALE). Yet, this is not just full-time employees, but also includes part-time employees as well. Full-time is defined as 30 hours a week. If you have two part-time employees who work 15 hours each week, they would combine to count as one full-time employee.
If your company has 50 employees and then adds seasonal workers, then these additional workers will also factor into your employee total. However, you need to note that your 50 employees need to have been employed for more than 120 days within the calendar year. For most companies, your ALE status will be determined by the number of qualifying employees you had during the previous year.
For those that qualify as ALE, then you must provide health insurance options to your employees, as well as any qualifying dependents. These options must meet the minimum standard as defined by the ACA. Your company can incur a penalty if less than 95% of the employees are not offered coverage.
Finally, as both an individual and an employer, it is important to remember that you need to have the minimum coverage required by the act in terms of insurance. You will be potentially liable for a penalty if this is not in place for the current tax year. Additionally, there may be tax penalties for the months where you did not have health coverage throughout the year. Employers need to keep a rule of thumb regarding the health insurance that they offer their employees, as it needs to cover at least 60% of the total cost of benefits for the services provided by the plan.
Click on the link below to contact one of the tax professionals at Bhatia & Co, Inc, CPAs in Santa Clara, CA, to discuss your options regarding the ACA premium tax credit and any potential liabilities you might be incurring.
BHATIA & CO, INC, CPAs