Column 69 Be sure to notice the notices.

The Affordable Care Act (ACA) reconciliation will begin when folks submit their tax returns for 2014.  Remember that in order to be eligible for a subsidy under the ACA you must have purchased your insurance through the Exchange.  This is known as Covered CA in our state. 

In addition, you must file your tax return by April 15, 2015.  No extensions are allowed. Many folks that qualified for subsidies are self-employed and used to filing for extensions.  This is a critical piece of the legislation that must not be forgotten.

For those who are wondering how this is all "washed out" and reported at the end of the year, the answer is in the new tax forms.  The first is form 1095A.  This is issued to anyone who purchased coverage under the Exchange.  It will provide the information that is required to complete Form 8962 PTC (Premium Tax Credit).

 

The next form is 1095B.  It will be issued by fully insured and self-insured health plans verifying that an individual had Minimum Essential Coverage (MEC). This will apply to individual, group, COBRA and retiree plans. It informs the IRS which individuals had MEC by each month of the year.  This detail also assists the individuals in filing their tax forms.

 

Finally there is Form 1095C.  This form is filed by all applicable large employers, whether they have a fully insured, self-insured or do not offer a plan at all. The information will be filed with the IRS and a statement is provided for individuals. It is designed to inform the IRS, as well as the individual of the information needed to see if they qualify for a tax credit.

 

From what I can tell, this combination of forms may be the place where some folks are going to be in for a bit surprise.  I have been lamenting the fact that the Covered CA application and website do a poor job of alerting consumers to the definition of "affordable health coverage".  The application simply asks if you have such coverage, but does not define it.

 

"Affordable" to most folks, is not the same as the definition under the ACA.  One safe harbor definition is whether or not the employee share of premium for employee-only coverage exceeds 9.5% of the employee's W-2 income.  If it does not exceed this figure it is "affordable".  Most folks simply do not understand this. 

 

They are looking at the fact that the premium for dependents is too much for them to pay.  Therefore, they believe they do not have access to affordable coverage. So, they answered the question with "no". I have been told by more than one applicant that they were instructed by Covered CA that it was ok to do this. Others simply told me they would not apply through me when I informed them of the rules.  They decided to apply direct and answer the question in the manner that gave them a subsidy. They did not believe they would get caught.

 

I expect that when/if these forms are matched up for a couple filing a joint tax return, this may very well expose this situation.  If the family is under 400% of Federal Poverty level, the refund of subsidy will not be total, but it will still be significant.

 

Of course, I am not a CPA and do not give tax advice.  But the reality of working with clients in this milieu is that we must understand how to read a tax return and how to project income.  Since most agents are self-employed, they likely have a basic understanding of the tax structure.  This helps them know what to look for in this process.

 

Employers should be prepared to provide the information about benefits to their tax preparer at year end.  If you are an employer or HR professional, you should have a good accounting package that tracks the employee share of premium and are well aware of the status of your health plans.

 

 

Note: All information in this column is provided" to the best of my knowledge" subject to final regulation by the respective agencies.