Ever since the passage of the Affordable Care Act, I have been wondering how all the costs and subsidies will be reconciled on individual tax returns and what kind of documentation will be required.
Individuals who chose to receive advance payment of the tax credit for their health-insurance premiums will have to calculate the actual credit they qualified for, based on their actual 2014 income. If that actual calculated credit exceeds the value of the estimated payment made in advance, the taxpayer will be entitled to receive an additional credit. If it goes the other way, however, the tax refund will be reduced or the amount owed will be increased.
The IRS has issued a draft of the new Form 8962, “Premium Tax Credit,” which taxpayers will use to make these calculations. The IRS has also drafted Form 1095-A, “Health Insurance Marketplace Statement.” Each of the state marketplaces, and the federal Marketplace that covers many states including North Carolina, will issue this form to the taxpayer to help with completion of the tax return. It will contain information including a confirmation that the taxpayer has insurance coverage, and will show the cost of that coverage. This information will be provided to the IRS as well. That means taxpayers will need to make sure the amounts they report on Form 8962 agree with the amounts reported on Form 1095-A.
Because of these additional forms, many individuals who used to file simple tax forms such as Form 1040-EZ may no longer be able to use them.
This increased complexity means those who use tax preparation services will face increased costs for complying with the law. However, most individuals will have health coverage provided through an employer’s group policy and so will only need to check a box on their return.
My concern is that some individual taxpayers may be in for a surprise at tax time. Those are the people who had been getting credits toward their health insurance premiums, but whose financial circumstances have improved since they first signed up nearly a year ago. The tax-time surprise would not happen, of course, if they have updated their information with the Marketplace. That update would have resulted in an adjustment in their subsidies and premium payments.
Human nature being what it is, though, I expect that most individuals will not notify the Marketplace of their changed circumstances, but will simply deal with the consequences at tax time.
Help from the IRS at tax time may be slow, by the way, due to budgetary constraints that have cut into the agency’s staff and other resources.
Nothing has been smooth so far with the Affordable Care Act, and I don’t anticipate the compliance side at tax time to be any different.
Randy McIntyre is a Certified Public Accountant and a partner in McIntyre, Paradis, Wood & Company, CPAs. He has worked in public accounting since 1977, in Wilmington since 1992. His firm is built on a history of service, technical expertise, and innovative to provide the expertise of larger firms with a personal, one-on-one approach. To learn more about McIntyre, Paradis, Wood & Company, see www.mpwcpas.com. He can be reached at [email protected] or 910-793-1181.
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