The Internal Revenue Service is providing advice to taxpayers and tax preparers this tax season on the various tax credits and tax-related provisions under the Affordable Care Act.

“Everyone has important decisions to make concerning health care coverage in 2014,” said the IRS.  “Starting in 2014, you must choose to either have basic health insurance coverage (known as minimum essential coverage) for yourself and everyone in your family for each month or go without health care coverage for some or all of the year. If you don’t maintain health insurance coverage, you will need to either seek an exemption or make an individual shared responsibility payment for the period that you are not covered with the 2014 income tax return you file in 2015.”

The IRS pointed out that qualifying health care coverage includes:

• health insurance coverage provided by an employer (including COBRA and retiree coverage),

• health insurance coverage purchased through a Marketplace,

• Medicare, Medicaid or other government-sponsored health coverage including programs for veterans, or

•    coverage bought directly from an insurance company.

If taxpayers purchase health insurance coverage through the Marketplace, they may be eligible for financial assistance including the premium tax credit, which will help lower the out-of-pocket cost of their monthly insurance premiums. 

Qualifying coverage does not include certain coverage that may provide limited benefits, such as coverage only for vision care or dental care, workers’ compensation, or coverage only for a specific disease or condition, the IRS pointed out.

However, some hardship exemptions from the law are available. “If you choose to go without coverage or experience a gap in coverage, you may qualify for an exemption if you do not have access to affordable coverage, you have a gap of less than three consecutive months without coverage, or you qualify for one of several other exemptions,” said the IRS. “A special hardship exemption applies to individuals who purchase their insurance through the Marketplace during the initial enrollment period but due to the enrollment process have a coverage gap at the beginning of 2014.”

If taxpayers (or any of their dependents) do not maintain coverage and do not qualify for an exemption, they will need to make an individual shared responsibility payment with their tax return, the IRS noted. In general, the payment amount is either a percentage of the taxpayer’s household income or a flat dollar amount, whichever is greater. Taxpayers will owe 1/12th of the annual payment for each month they (or their dependents) do not have coverage and are not exempt. The annual payment amount for 2014 is the greater of:

• 1 percent of household income that is above the tax return filing threshold for the taxpayer’s filing status, such as Married Filing Jointly or single, or

• The family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285.

The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the HealthCare.gov Marketplace in 2014. Taxpayers will have to make the payment when they file their 2014 federal income tax returns in 2015.

Health Care Tax Tips
The IRS is also offering educational Health Care Tax Tips to help individuals understand how the Affordable Care Act may affect their taxes.

The IRS has designed the Health Care Tax Tips to help people understand what they need to know for the federal individual income tax returns they are filing this year, as well as for future tax returns. This includes information on the Premium Tax Credit and making health care coverage choices.

Although many of the tax provisions included in the law went into effect on Jan. 1, 2014, most do not affect the 2013 tax returns.

The Health Care Tax Tips, which are now available at IRS.gov/aca, include:

• IRS Reminds Individuals of Health Care Choices for 2014 - Find out what you need to know about how health care choices your clients make for 2014 may affect their taxes.

• The Health Insurance Marketplace - Learn about Your Health Insurance Coverage Options – Find out about getting health care coverage through the Health Insurance Marketplace.

• The Premium Tax Credit - Learn the basics of the Premium Tax Credit, including who might be eligible and how to get the credit.

• The Individual Shared Responsibility Payment – An Overview - Provides information about types of qualifying coverage, exemptions from having coverage, and making a payment if you do not have qualifying coverage or an exemption.

• Three Timely Tips about Taxes and the Health Care Law -  Provides tips that help with filing the 2013 tax return, including information about employment status, tax favored health plans and itemized deductions.

• Four Tax Facts about the Health Care Law for Individuals - Offers basic tips to help people determine if the Affordable Care Act affects them and their families, and where to find more information.

• Changes in Circumstances can Affect your Premium Tax Credit - Learn the importance of reporting any changes in circumstances that involve family size or income when advance payments of the Premium Tax Credit are involved.

In addition to Health Care Tax Tips, the IRS.gov/aca Web site offers informative flyers and brochures, Frequently Asked Questions and in-depth legal guidance regarding the tax provisions of the Affordable Care Act.  

Individuals interested in receiving copies of IRS tax tips via email on a variety of topics, including the Affordable Care Act, can subscribe at www.irs.gov/uac/Subscribe-to-IRS-Tax-Tips.

Health Insurance Marketplace Coverage Options
If some of your clients don’t have health insurance coverage, or if they have it but want to find out about other options; help is available at the Health Insurance Marketplace. While no one is required to use the Marketplace, if you or your clients need insurance, it may be right for you.

The Department of Health and Human Services administers the requirements for the Marketplace and the health plans they offer.

An open enrollment period to get coverage for 2014 through the Marketplace began on October 1, 2013 and runs through March 31, 2014. The start of someone’s coverage depends upon when they enroll.

When individuals visit the Marketplace, they can fill out one Marketplace application to learn if they can get lower costs based on their income, compare coverage options side-by-side, and if they choose, they can enroll in health insurance coverage.

If they purchase coverage through the Marketplace, they may be eligible for the premium tax credit. This refundable tax credit helps people with moderate incomes afford health insurance coverage they purchase through the Marketplace.

If taxpayers are eligible for the credit, they can choose to “get it now” by having some or all of the credit paid in advance.  These payments go directly to their insurance company to lower what they pay out-of-pocket for your monthly premiums during 2014.  Or they can “get it later” by waiting to  get the credit when you file your 2014 tax return in 2015.

For more information about your coverage options, financial assistance and the Marketplace, visit HealthCare.gov. Find out more about the premium tax credit, as well as other tax-related provisions of the health care law at www.IRS.gov/aca.

Premium Tax Credit
The premium tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes.  To be eligible for the credit, taxpayers generally need to satisfy three rules.

First, they need to get health insurance coverage through the Health Insurance Marketplace. The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from October 1, 2013 through March 31, 2014.

Second, they need to have household income between one and four times the federal poverty line. For a family of four for tax year 2014, that means income from $23,550 to $94,200.

Third, they can’t be eligible for other coverage, such as Medicare, Medicaid, or sufficiently generous employer-sponsored coverage.

If a  Marketplace determines that they’re likely to qualify for the tax credit at the time they enroll, they have two choices: they can choose to have some or all of the estimated credit paid in advance directly to their insurance company to lower what they pay out-of-pocket for their monthly premiums during 2014.  Or, they can wait to get all of the credit when they file their 2014 tax return in 2015.

If they wait to get the credit, it will either increase their refund or lower their balance due.

If they choose to receive the credit in advance, changes in their income or family size will affect the credit that they are eligible to receive.  If the credit on the tax return they file in 2015 does not match the amount they have received in advance, they will have to repay any excess advance payment, or they may get a larger refund if they are entitled to more. It is important for your clients to tell the Marketplace about any changes in their income or family size as they happen during 2014 because these changes will affect the amount of their tax credits.

For more information about the individual shared responsibility provision and the premium tax credit, visit IRS.gov/aca. Visit the Department of Health and Human Services at HealthCare.gov for more information about health insurance coverage options and the Health Insurance Marketplace, financial assistance and exemptions.