The IRS is handling the health insurance coverage question on your 2017 tax return differently this year. For the tax return you will file in 2018 and 2019 for tax years 2017 and 2018 respectively, you will need to answer the health insurance coverage questions or risk delaying your tax refund by several more weeks. Under the New Tax Reform, signed into law on December 22, 2017, the Affordable Care Act shared responsibility payment — otherwise known as a fine or Obamacare penalty — has been eliminated starting in 2019. However, it remains effective for tax years 2017 and 2018.
Last year, the IRS processed tax returns without the health insurance questions being completed. Then the IRS followed up with taxpayers for the additional information to complete their return. Starting with tax year 2017, the IRS is not releasing taxpayers’ refunds until they receive the necessary information.
The information you should report regarding your health insurance coverage question on your 2017 tax return to the IRS depends on the coverage you carried during the tax year. If you had health insurance for all or part of the tax year, you should receive a 1095-A, 1095-B, or 1095-C from the health insurance provider of that coverage. If you had more than one health insurance company, than you should receive a form from each insurance provider showing the months you had coverage. You do not need to submit a copy of either of these forms to the IRS when you file your return.
Private or Employer Provided Coverage. If you had insurance through a private provider or an employer, you should receive Form 1095-B or 1095-C by early March. You do not need to wait until you receive the form to file your taxes, and you do not need to send a copy to the IRS. You just need to confirm on your tax return that you had coverage for the entire tax year.
Marketplace Coverage. If you receive health insurance through the Marketplace, otherwise known as Obamacare or Affordable Care Act, you should receive Form 1095-A by early February. You will need Form 1095-A to complete Form 8962, to figure the amount of your premium tax credit (PTC) and reconcile it with the advance payment of the premium tax credit (APTC) you received. This means depending on how much money you made will depend on how much percentage of the health insurance premiums you will have to pay. If you made more money for the tax year than you reported when you signed up for health insurance through the Marketplace, e.g., if you received a raise, worked additional hours, or picked up a second job, the additional amount you owe for the health insurance will be deducted from your refund. If you made less money for the tax year than you reported when you signed up for health insurance through the Marketplace, e.g., if your hours were cut, lost your job, or received less pay, your refund will be increased by the additional amount you should not have paid for health insurance during the year.
For 2017 and 2018, the Obamacare penalty, Affordable Care Act fine, or shared responsibility payment, regardless of what you call it, is capped at the cost of the national average premium for a bronze level health insurance coverage through the Marketplace. This fine applies for each month the taxpayer both did not have health insurance coverage and did not qualify for an exemption. For 2017, the bronze level health insurance plan through the Marketplace was $3,264 annually or $272 per month for an individual and $16,320 annually or $1,360 per month for a family with five or more members.
The penalty is either a percentage of your household income above the filing threshold or a flat dollar amount, whichever is greater. The percentage of income above the filing threshold for 2017 and 2018 is 2.5%. The flat dollar amount for 2017 and 2018 is $695 per adult and $347.50 per child with a family maximum of $2,085. For example, a single filer who earns $40,000 would calculate her shared responsibility payment by taking $40,000 (her gross income) subtracting $10,400 (filing threshold) and multiplying the results by 2.5%, which equals $740. She would owe $740 (or $61.67 ($740/12)) per month because it is greater than $695 but less than $3,264 for each month she did not have health insurance coverage. If she did not have coverage for 4 months than she would owe $246.68 ($61.67 x 4), as her shared responsibility payment.
If you receive Letter 0012C (LTR 0012C) from the IRS regarding health insurance coverage questions, it means they are just following up for additional information. The IRS asks you to read the letter carefully and response timely. You can either fax or mail your response to the IRS at the contact information listed on the letter. Make sure to include a copy of your letter from the IRS with your response. You will not need to amend your tax return. Once you provide the information requested by the IRS, they will use the information your provided to continue to process your return. If you disagree with the IRS, send them a letter stating why you disagree and include the information they are requesting. If you are entitled to a refund, it will take the IRS approximately 6 – 8 weeks to process it after they receive your response.
A lot of people filed early before they received Form 1095-A, so they were unable to complete Form 8962 when they filed their return. The IRS is holding returns until the taxpayers send the necessary requested information, including a completed Form 8962 and a copy of Form 1095-A.
Other taxpayers qualified for an exemption to the so-called Obamacare penalty and were not required to carry health insurance; however, they either forgot to file or did not complete correctly Form 8965. The IRS may follow up for additional information not realizing the taxpayer qualified for an exemption. If this applies to you, you will need to complete Form 8965 and send it to the IRS with the necessary proof to show you qualify for an exemption.
If the IRS received conflicting information and you did not have either health insurance coverage for the entire tax year or qualify for an exemption, you will need to contact the IRS and have them apply the applicable shared responsibility payment. Once they deduct your penalty from your refund, they will finish processing your return.
To avoid having your refund delayed by IRS an additional six weeks or longer, make sure you answer the health insurance coverage questions completely and attach Form 8962 or Form 8965, if required. If you didn’t and you need help understanding and/or responding to this or another letter from the IRS, contact the tax preparation professionals at Gudorf Tax Group to schedule an appointment.