What is the Affordable Care Act?
Under
the Affordable Care Act, the federal government, state governments, insurers,
employers, and individuals share responsibility for improving the quality and
availability of health insurance coverage in the United States. The ACA reforms
the existing health insurance market by prohibiting insurers from denying
coverage or charging higher premiums because of an individual’s preexisting
conditions.
The
ACA also creates the Health Insurance Marketplace, also known as the
Marketplace or the Exchange. The Marketplace is where taxpayers find
information about health insurance options, purchase qualified health plans
and, if eligible, obtain help paying premiums and out-of-pocket costs. A new
tax credit, the premium tax credit, is available only if the taxpayer purchased
a qualified health plan through the Marketplace. This credit helps eligible
taxpayers pay for coverage.
The
ACA also includes the individual shared responsibility provision, which
requires individuals to have qualifying health care coverage for each month of
the year, qualify for a coverage exemption, or make a shared responsibility
payment when filing their federal income tax returns. For purposes of ACA,
qualifying health care coverage is also called minimum essential coverage. Most
taxpayers already had minimum essential coverage prior to the start of the year
and only had to maintain that coverage during the entire year. If taxpayers and
their dependents had minimum essential coverage for each month of the year, the
taxpayer will simply check a box indicating that coverage when filing the
federal income tax return. No further action is required.
Some
taxpayers are exempt from the coverage requirement of the individual shared
responsibility provision and do not have to make a shared responsibility
payment when filing a federal income tax return. Coverage exemptions are
available for individuals specifically described as having a religious,
economic, or other justification for not having minimum essential coverage.
Taxpayers who qualify for an exemption will attach a Form 8965, Health
Coverage Exemptions, to their federal income tax return to claim that
exemption.
Taxpayers or any dependents who did not maintain minimum essential
coverage for each month of their tax year and did not qualify for a coverage
exemption must make an individual shared responsibility payment with their
federal tax return
Individual Shared
Responsibility Provision
What is the individual
shared responsibility provision?
For each month of the
year, the individual shared responsibility provision calls for individuals to:
Have qualifying health
care coverage (also called minimum essential coverage), or
Qualify for an
exemption from coverage, or
Make an individual
shared responsibility payment when filing their federal income tax return
Individuals are treated
as having minimum essential coverage for the month as long as the individuals
are enrolled in and entitled to receive benefits under a plan or program
identified as minimum essential coverage for at least one day during that
month.
Who must have
health care coverage?
In general, all U.S.
taxpayers are subject to the individual shared responsibility provision. Under
the provision, a taxpayer is potentially liable for him or herself, and for any
individual the taxpayer could claim as a dependent for federal income tax
purposes. Thus, all children generally must have minimum essential coverage or
qualify for a coverage exemption for each month in the year. Otherwise, the
primary taxpayer(s) (e.g., parents) who can claim the child as a dependent for
federal income tax purposes will generally owe an individual shared
responsibility payment for the child.
Senior citizens must
also have minimum essential coverage or qualify for a coverage exemption for
each month in the year. Both Medicare Part A and Medicare Part C (also known as
Medicare Advantage) are minimum essential coverage.
All U.S. citizens are
subject to the individual shared responsibility provision, as are all non-U.S.
citizens who are in the U.S. long enough during a calendar year to qualify as
resident aliens for federal income tax purposes. Foreign nationals who live in
the U.S. for a short enough period that they do not become resident aliens for
tax purposes are exempt from the individual shared responsibility provision
even though they may have to file a U.S. income tax return.
All bona fide residents
of U.S. territories are treated as having minimum essential coverage and are
not required to take any action to comply with the individual shared
responsibility provision other than to indicate their status on their federal
income tax returns.
What is minimum
essential coverage?
Under the ACA, minimum
essential coverage, is a health care plan or arrangement specifically
identified in the law as minimum essential coverage, including:
Specified
government-sponsored programs (e.g., Medicare Part A, Medicare Advantage, most
Medicaid programs, CHIP, most TRICARE programs, and comprehensive health care
coverage of veterans)
Employer-sponsored
coverage under a group health plan (including self-insured plans)
Individual market
coverage (e.g., a qualified health plan purchased through the Marketplace or
individual health coverage purchased directly from an insurance company)
Grandfathered health
plans (in general, certain plans that existed before the ACA and have not
changed since the ACA was passed)
Other plans or programs
that the Department of Health and Human Services recognizes as minimum
essential coverage for the purposes of the ACA
What are the health
coverage exemptions?
The following is a
partial list of exemptions:
Unaffordable coverage – The amount the taxpayer would have paid for the lowest cost
employer-sponsored coverage available or for coverage through the Marketplace
is more than eight percent of the taxpayer’s household income for the year.
Short coverage gap – The taxpayer went without coverage for less than three consecutive
months during the year.
Household income below the return filing threshold – The taxpayer’s
household income is below the taxpayer’s minimum threshold for filing a tax
return.
Certain noncitizens – The taxpayer was neither a U.S. citizen, U.S. national, nor an
alien lawfully present in the U.S.
Members of a health care sharing ministry – The taxpayer was a
member of a health care sharing ministry, which is a tax-exempt organization
whose members share a common set of ethical or religious beliefs and have
shared medical expenses in accordance with those beliefs continuously since at
least December 31, 1999.
Members of Indian tribes – The taxpayer was a member of a federally-recognized Indian tribe,
including an Alaska Native Claims Settlement Act (ANCSA) Corporation
Shareholder (regional or village), or is otherwise eligible for services
through an Indian health care provider or the Indian Health Service.
Incarceration – The taxpayer was in a jail, prison, or similar penal institution
or correctional facility after the disposition of charges.
Members of certain religious sects – The taxpayer was a
member of a religious sect that has been in existence since December 31, 1950,
and is recognized by the Social Security Administration as conscientiously
opposed to accepting any insurance benefits, including Medicare and social
security.
What is the individual
shared responsibility payment?
If anyone in the taxpayer’s tax household does not have minimum
essential coverage, and does not qualify for a coverage exemption, the taxpayer
will need to make an individual shared responsibility payment (SRP) when filing
their federal income tax return.
Premium Tax Credit
and Advance Payments
Who can claim a premium
tax credit?
Only taxpayers who
purchased qualified health plan from a State-based or Federally-facilitated
Health Insurance Marketplace (Marketplace) may be eligible for the premium tax
credit. This is a new federal tax credit to help eligible taxpayers pay for
health insurance premiums. When enrolling in a qualified health plan through
the Marketplace, eligible taxpayers choose to have some or all of the benefit
of the credit paid in advance to their insurance company as advance credit
payments or wait to claim all of the benefit of the premium tax credit on their
tax return. Taxpayers must file a tax return to claim the premium tax credit.
Those who choose advance credit payments must file a tax return to reconcile
their advance credit payments with their actual premium tax credit even if they
have gross income that is below the income tax filing threshold.
In general, taxpayers
are allowed a premium tax credit if they meet all of the following:
The taxpayer, spouse
(if filing a joint return), or dependents were enrolled at some time during the
year in one or more qualified health plans offered through the Marketplace.
One or more of the
individuals listed above were not eligible for other minimum essential coverage
during the months they were enrolled in the qualified health plan through the
Marketplace.
The taxpayer is an
applicable taxpayer. A taxpayer is an applicable taxpayer if he or she meets
the following three requirements: The taxpayer’s income is at least 100 percent
but not more than 400 percent of the federal poverty line for the taxpayer’s
family size. (See the exception below for taxpayers with household income below
100 percent of the federal poverty line who are not citizens, but are lawfully
present in the U.S. See the definition of “applicable taxpayer” in the glossary
for another exception for taxpayers with household income below 100 percent of
the federal poverty line for whom advance credit payments were made.)
If married, the
taxpayer files a joint return with his or her spouse (unless the taxpayer is
considered unmarried for Head of Household filing status, or meets the criteria
in Notice 2014-23 or T.D. 9683, which allows certain victims of domestic abuse
or spousal abandonment to claim the premium tax credit using the MFS filing
status). See the glossary for more information about domestic abuse or spousal
abandonment and the instructions for Form 8962, Premium Tax Credit, for more
details about these exceptions.
The taxpayer cannot be
claimed as a dependent by another person.
A taxpayer with
household income below 100 percent of the federal poverty line can be an
applicable taxpayer as long as the taxpayer, the taxpayer’s spouse, or a
dependent who enrolled in a qualified health plan is not a U.S. citizen, but is
lawfully present in the U.S. and not eligible for Medicaid because of
immigration status.
