PAYDAY Workforce Solutions Blog

According to H&R Block, the Affordable Care Act (ACA) health insurance coverage had more of a negative effect on insureds’ tax filings in 2015 than expected. H&R Block reports that more than half of its client tax filers who were covered under ACA health insurance from state or federal marketplaces had to pay back an average of $729 of their Advance Premium Tax Credit. Only a quarter of their clients were due additional premium tax credit, increasing their refunds by an average $425.

What the ACA Premium Tax Credit Does

The ACA premium tax credit eligibility is based on income, family size and health insurance coverage. It is available to those who get their insurance through the Health Insurance Marketplace, with income between 100 and 400 percent of the Federal poverty level, who aren’t using Married Filing Separate status, and who are not eligible for other coverage such as employer-based health insurance.

The tax credit caps the monthly premium paid to between two and nine and a half percent of total household Modified Adjusted Gross Income per household member. Taxpayers can choose to either take the tax credit in advance with their marketplace insurer or deduct the tax credit on their tax returns. Taxpayers should report any life changes when they happen and the Marketplace can adjust the tax credit based on those changed.

What Happened with 2014 Tax Returns?

H&R Block reports that the average tax refund for 2014 filers with premium tax credits was just over $2,000 and the average premium tax credit reconciliation payment amount was $729, or a 33 percent reduction in the average refund. H&R Block also found that there was high usage of tax return exemptions. The major consumer tax company suggests that this high usage of the tax return exemption rather than the paper-based marketplace exemption application means that taxpayers are still uncertain of the process and would rather use familiar methods.

Employer Mandate

The ACA includes an employer mandate with an array of rules to meet as well as monetary penalties for noncompliance. These rules include conditions for employers with 50 or more full-time equivalent employees, such as requiring employers to offer health insurance coverage to 95 percent of their full-time employees, coverage must be affordable (not costing more than 9.5 percent of employee household income) and provide at least the minimum value requirements).

Employers with more than 50 full-time equivalent employees who don’t offer health coverage to the required amount of employees and dependents are subject to a fee called the employer shared responsibility payment. The fee is usually $2,000 a year per employee or $3,000 per employee if the employee obtained marketplace cost assistance. These fees are payable in monthly installments and are not tax deductible like employer contributions to employee premiums for employer-sponsored healthcare plans. Many employers will be required to send out 1094 and 1095 forms in 2016 to employees and the IRS.

More ACA-related Complexity

H&R Block health care and tax services vice president Mark Ciaramitaro cautions that next year’s tax-filing season will mean more of the same because of more ACA-related complexity. He advises tax filers to pay close attention to accurately estimating income to apply for premium tax credits and immediately notify the marketplace of life events that change annual income or household size.

Next tax filing season, all taxpayers with insurance will need additional documents to file taxes to verify household insurance coverage status. They’ll receive 1095 forms from the government, employers, or insurance carriers, and will have to have them to file their returns. With penalty fees for not having proof of health insurance coverage increasing for “year two,” tax experts expect more taxpayer anxiety over filing and refunds, more exemptions and more marketplace enrollments. This will make it even more important for taxpayers to pay attention to tax filing accuracy and for employers to pay attention to employer mandate rules.

To ensure that your company is filing taxes accurately and that you are in compliance with employer mandate rules, consider using a payroll service.


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