Affordable Care Act

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.