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The Individual Mandate’s Tax Filing Requirements

The Individual Mandate’s Tax Filing Requirements

As we approach the end of tax season, there’s a lot of confusion about the tax filing requirements under the Affordable Care Act’s individual mandate, largely because Americans have received mixed messages about what the rules actually are.

On day one of his administration, for example, President Trump signed an executive order instructing federal regulators to take steps to ease the financial burdens of Obamacare, and the IRS responded by saying that the agency would not automatically reject 2016 tax returns that fail to answer the question about whether the individual or family had minimum essential coverage. We’ve also heard Republican lawmakers on cable news stations saying that they will soon be repealing Obamacare and eliminating the individual mandate. In the American Health Care Act, they tried to do just that: the AHCA would have reduced the ACA’s individual shared responsibility penalties to $0 beginning January 1, 2016.

Of course, the AHCA failed to make it out of the House of Representatives, so the penalties under the individual mandate remain in effect, and the IRS announcement that it won’t reject tax returns that fail to answer the shared responsibility question doesn’t mean that people don’t owe any applicable penalty. For now, you should advise your clients that the ACA is still the law of the land, people are still required to have health coverage, and they will have to pay an excise tax if they go without health insurance and don’t qualify for an exemption. With that in mind, here’s some additional information about the tax filing requirements:

Form 1095

Employees who had health insurance for one or more months during 2016 should have received either a Form 1095-B from their health insurance company or a 1095-C from their employer depending on whether their company was fully- or self-insured. People with an individual policy should have received a 1095-B from their insurer. This form shows the months in which the individual had minimum essential coverage (and therefore satisfied the requirements under the individual mandate).

Form 8965

A taxpayer who went without health coverage (or whose dependents went without coverage) for one or more months in 2016 will want to complete Form 8965. This simple one-page form, which the taxpayer attaches to his or her tax return, allows people to claim one or more of the health law’s many exemptions, including the affordability exemption, or to report an exemption that was granted by the Marketplace (with a corresponding Exemption Certificate Number). Taxpayers who were uninsured can avoid a penalty for any month in which they’re eligible for an exemption.

Shared Responsibility Payment Flowchart

For anyone who was uninsured for three or more consecutive months in which he or she did not qualify for an exemption, an individual shared responsibility payment will be due. To calculate the penalty amount, there’s a shared responsibility payment flowchart in the Form 8965 Instruction Booklet. This flowchart will help the taxpayer determine whether the flat dollar amount or percentage of income penalty will apply, help him or her calculate the annualized amount, and then prorate the penalty based on the number of months he or she (or a dependent) went without minimum essential coverage. That penalty amount would then be transferred to the 1040, 1040-A, or 1040-EZ, but the flowchart does not need to be sent to the IRS.

Other Forms

Obviously, this is not intended as a comprehensive tax tutorial, and other forms created as a result of the Affordable Care Act may also apply. For instance, anyone who has coverage through the Marketplace will receive a Form 1095-A, Marketplace Statement, and those with Marketplace coverage who received an advance premium tax credit or who would like to apply for a tax credit when filing their taxes will complete a Form 8962.

What You Should Know

We don’t expect you to help your clients complete their tax returns—in fact, we’d strongly advise against that. But because you’re selling the health coverage that creates some of the reporting requirements, you’re almost certain to get some questions about it. What you should be sure to tell your clients if they’re asking you about the individual mandate or about their tax filing requirements is that the Affordable Care Act is still in place and none of the requirements have changed. People are still required to have minimum essential coverage, those who qualify are still eligible for premium tax credits and cost sharing subsidies, and all of the individual and employer tax reporting requirements are still in effect. Until our elected officials change the laws, you shouldn’t tell people (or even imply) that they no longer have to purchase health coverage or complete the required paperwork.

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