Understanding the Credits of the Affordable Care Act

For many individuals, the provisions of the Affordable Care Act (ACA) have resulted in specific tax credits and potential penalties. Individuals and employers all have criteria to meet under the act, which has been phased in over the last few years. By working with your tax professional or accountant, such as Wealthy Living for Me in Durham, NC, you can determine what parts of the act apply to you.

Individual Taxpayer

For the individual tax payer, there is the ability to determine if they are due a credit under the Act. However, if you do not carry health insurance for the entire year, there may be a penalty owed with your filing.

Additionally, changes have been made to what can be reimbursed from the Flexible Spending Arrangement (FSA). While these funds can reimburse many medical out-of-pocket expenses, over-the-counter medicine can no longer be reimbursed without a prescription. However, most other health care expenses are still eligible for reimbursement. Using one of these accounts provided through your employer, it might be possible to carryover some funds to the new year.

Premium Tax Credit

Starting in 2014, the premium tax credit was provided to assist in paying their health insurance premiums. However, the credit is only available for those who use one of the Affordable Insurance Exchange or marketplaces to purchase their insurance. Even those with little or no tax liability can still benefit, because this is a refundable credit. In addition, an individual can direct that the credit be paid to the insurance company to supplement their monthly premiums.

However, if your income exceeds what was determined when applying through the marketplace, you may owe the government a 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.

ACA for the Employer

Companies and small businesses need to determine their status under the Affordable Care Act. Businesses with over 50 employees are defined as 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. Two part-time employees can be combined to equal one full-time employee, thus counting toward your ALE status.

If your company has 50 employees along with holiday or seasonal employees, then these additional workers may also count toward your total number of employees. Within the calendar year, the 50 employees need to have been employed over 120 days. For most companies, your ALE status will be determined by the number of qualifying employees you had during the previous year.

Qualifying ALEs are required to provide health insurance options to your employees and qualifying dependents. The ACA defines the minimum standards for options. To avoid a penalty, at least 95% of your employees must be offered coverage.

An employer has three safe harbors under the ACA. Complying with a minimum of one of these harbors, allows an employer to meet their shared responsibility requirement.

• Form W-2 safe harbor, based on the Box 1 wages
• Rate-of-pay safe harbor, which is based on your employee’s wages at the beginning of the coverage period for the health insurance.
• Federal poverty line, where the employee’s health insurance contribution does not exceed the 9.5% level of the federal poverty line during a particular year.

It is important to apply the safe harbor consistently across your workforce. Providing more than one health insurance option means the affordability component only applies to the low cost choice.

Finally, as both an individual and an employer, it is critical to have the minimum coverage insurance as required by the ACA. Those who do not meet the minimum coverage requirements could be liable for a tax penalty when filing your return. Additionally, for any months that your insurance did not meet the minimum requirements, you may also incur a penalty. 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. Again, there are potential penalties for businesses that do not offer health insurance or that do not meet the minimum requirements.

Click on the link below to contact one of the tax professionals at Wealthy Living for Me in Durham, NC, to determine what choices are available for you or your company regarding the ACA and how to limit any potential liabilities.