Every single 1040 filed will have at least 1 thing different about it this year. Yes, the Affordable Care Act changes things. For some significant changes and for others just a checked box. Let’s go over a few of the things you need to be aware of.
The Premium Assistance Tax Credit is one of the hallmarks of this legislation that will affect taxpayers. Many Californians used www.coveredca.com to sign up for health insurance. This is the website that really, really lagged at first. It was a nightmare. Government mandates and slow web pages should never go together! But it was fixed and now runs fairly smooth. Of the many Californians that used www.coveredca.com, many qualified for a portion of their monthly insurance payment to be reduced by this “Premium Assistance Tax Credit”.
Basically, how this works is each month the Federal government, on your behalf, sends your health insurance provider (Kaiser, HealthNet, etc.) the amount of the monthly credit you qualified for.
How to qualify for this credit is mainly based on income. The less you make, the more you get. Of course, you’ve got to be able to predict your future income. When I signed up in November of 2013 for 2014, I had to ‘guesstimate’ exactly how much income I was going to have in 2014.
Here is where the trouble starts. Let’s say on your application with www.coveredca.com in late 2013, you estimate that your income for 2014 is going to be $40,000. Ok, great, you qualify for the credit. And you get that credit monthly. But let’s say in 2014 you accidentally get a raise or start a side business that makes some money, boosting your 2014 income in actuality to $47,000. You were supposed to contact www.coveredca.com and let them know of your extra income. They would reduce the amount of monthly credit you get and that’s that.
But if you didn’t contact www.coveredca.com…
The total credit gets reconciled on your 2014 1040. There is a ‘repayment’ provision. On the 2014 Form 1040, Line 46 says “Excess advance premium tax credit repayment.” Depending on your family size and income, your repayment amount could be as high as $2,500 and as low as $300.
There is the other side of this coin however. Perhaps on your application you estimated $47,000 of 2014 income, but in actuality your income was only $40,000. You are eligible to receive a refundable tax credit on your tax return. In other words, your refund will be larger than expected!
(A quick tip and something to consider: Traditional IRA contribution. If you qualify for the credit and are not covered by an employer retirement plan, a contribution to an IRA will reduce your income, increase the Premium Assistance Tax Credit, and you may be eligible for an Early Retirement Credit. Please ask us about this during your tax appointment!)
Form 1095-A is the form that will contain all the information your tax professional needs to complete your Premium Assistance Tax Credit. Where does it come from: www.coveredca.com. They will mail one to you by February 2. Only those who purchased insurance via www.coveredca.com will get a Form 1095-A. Please bring it with you!
I cannot stress to you the importance of using a tax professional this year! The calculation of the Premium Assistance Tax Credit alone is worrisome! But we have to be positive thinkers here…there is a major opportunity for you to save big money by going to a professional who knows how to reduce your adjusted gross income.