William Byrnes' Tax, Wealth, and Risk Intelligence

In its 9th Health Care Tax Tip, the IRS emphasized how a taxpayer may obtain and claim exemption from health care coverage required by law under the Affordable Care Act (Obama Care).  The Affordable Care Act requires you and each member of your family to have minimum essential coverage, qualify for an insurance coverage exemption, or make an individual shared responsibility payment when you file your federal income tax return.

If a taxpayer meets certain criteria, then the taxpayer may claim to be exempt from the requirement to have “qualifying health coverage”.  If the taxpayer is found to be exempt, then the taxpayer will not have to pay the tax penalty called a “shared responsibility payment” when filing the 2014 federal income tax return.  But for any month that the taxpayer does not qualify for the exemption, then the taxpayer will need to have minimum essential coverage for that month or pay a month’s worth of penalty.

A taxpayer may seek exemption from coverage depending upon the type of exemption for which the taxpayer may be eligible.  A taxpayer can obtain some exemptions only from the Health Care Marketplace, while others exemptions may be claimed when filing the annual tax return.

A taxpayer may be exempt if:

• The minimum amount for the annual premium is more than eight percent of the taxpayer’s household income
• The Taxpayer has a gap in coverage that is less than three consecutive months
• A taxpayer may qualify for an exemption for one of several other reasons, including having a hardship that prevents the taxpayer from obtaining coverage, or belonging to a group explicitly exempt from the requirement

A taxpayer must claim or report coverage exemptions on Form 8965, Health Coverage Exemptions, and attach it to Form 1040, Form 1040A, or Form 1040EZ.

Health Care Marketplace Exemption Certificate Number If a coverage exemption is granted from the Health Care Marketplace, then the Market Place will send a notice with a unique Exemption Certificate Number (ECN).  The taxpayer must enter the ECN in Part I, Marketplace-Granted Coverage Exemptions for Individuals, of Form 8965 in column C.  If the Marketplace has not sent the ECN before a taxpayer files a tax return, then the taxpayer must complete Part I of Form 8965 and enter “pending” in Column C for each person listed.

If a taxpayer claims the exemption on the tax return, then the taxpayer does not need an ECN from the Marketplace.  With the tax filing season underway, most exemptions for 2014 are only available by claiming them on the tax return.

If the taxpayer’s income is below the tax filing threshold and thus the taxpayer is not required to file a tax return, then the taxpayer is eligible for an exemption and does not have to file a tax return to claim it.  But if the taxpayer chooses to file a tax return, the taxpayer must use Part II, Coverage Exemptions for Your Household Claimed on Your Return, of Form 8965 to claim a health coverage exemption.

Other IRS-granted coverage exemptions may be claimed on your tax return using Part III, Coverage Exemptions for Individuals Claimed on Your Return, of Form 8965.

Tax Facts on Individuals & Small Business

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor.  Financial advisors are continually looking for competitive information to help them provide the best answers for their clients and to obtain new clients.  National Underwriter’s Tax Facts series is the only resource written specifically for the financial advisor and producer providing fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts has been famous over 50 years.

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