The PPACA (Patient Protection and Affordable Care Act) is one of the acts that have contributed to the 2010 health care reform in the United States. Most of the law’s provisions have come into effect over time from 2010 through 2015, and have created several important tax considerations that affect both employers and individual tax payers.
The PPACA’s individual mandate obligates most Americans and their families, regardless of age, to be covered by health insurance. A penalty, known as the shared responsibility payment is imposed on those who do not; this payment will be charged on the individual’s Form 1040 Individual Income Tax Return and is based on the number of months during the year that the individual was not covered by health insurance. The 2014 tax return, filed in 2015, is the first Form 1040 that includes a line called “Health Care: Individual Responsibility”, where an individual who was not properly covered by health insurance is charged a penalty to be paid along with his/her income taxes.The insurance plan must grant minimal essential coverage (MEC), which is basic coverage. Any taxpayer who can claim another individual as a dependent, is responsible for the coverage or payment for that dependent. American citizens who live outside of the country for the whole year are considered covered by MEC, as are U.S. territory residents.
What qualifies as MEC?
1. Programs for health insurance sponsored by the government, like Medicaid, Medicare, veterans’ health care programs, the TRICARE program, the Children’s Health Insurance Program, specified coverage from the Defense Department, and Peace Corps volunteers coverage.
2. Health insurance coverage found on a health insurance marketplace, also called an affordable insurance exchange. These marketplaces are formed by the state or federal government.
3. Most health insurance plans provided by an employer.
4. Grandfathered health plan coverage
5. All other coverage identified as MEC by HHS and the Treasury Department.
What does not qualify as MEC?
1. When medical benefits are not primary, but rather secondary to other insurance benefits, like:
- Liability insurance and supplemental coverage to it
- Auto medical payment insurance
- On-site medical clinic insurance coverage
- Accident and disability insurance
- Workers’ compensation
- Credit-only insurance
2. When benefits are offered under a separate policy, like:
- Medicare supplemental health insurance coverage
- Limited dental and vision coverage
- Health insurance coverage for a specific illness
- Long-term care coverage
- Hospital indemnity coverage
There are those who are exempt from the requirement to have MEC/pay the penalty. Heath insurance marketplaces supply exemption certificates for many of the exempt groups. Taxpayers living outside of the United States, among others, can claim their exemption on their federal income tax return. The following groups are included in those that qualify for the exemption:
1. Religious sects that unfailingly oppose the receipt of any insurance benefits
2. Health care sharing ministry members
3. Indian tribes acknowledged by the United States federal government
4. Individuals who were not covered by health insurance for three successive months or less over the course of the year
5. Individuals who do not meet the tax return filing requirement because of income below the threshold
6. Individuals for whom minimum health insurance premium payments are greater than eight percent of their income
7. Individuals on whom a health insurance marketplace testifies that they cannot obtain health insurance coverage, or can only obtain coverage with very high premiums
8. Individuals present in the United States who are not citizens or resident aliens
Another provision of the PPACA is the Health Insurance Premium Assistance Tax Credit. This is a refundable tax credit available to individuals/families that buy health insurance through a health
insurance marketplace, but have income below specified income thresholds. The credit ranges from two percent for those at 100 percent of federal poverty level, to nine and a half percent of income people at 400 percent of federal poverty level. The taxpayers have an option to have the credit forwarded from the government to the insurer ahead of time, and then the taxpayer need only pay the variance between the credit and the insurance premiums.
