Tax forms for 2014, such as W-2s and 1099s, will soon be
arriving in the mail, which means it isn’t too early to start thinking about
putting together your Form 1040 for last year. For 2014, there are only two
important federal income-tax changes for individual taxpayers, beyond the usual
inflation-indexing of tax-rate brackets and various other parameters. Both have
to do with the Affordable Care Act, also referred to as “Obamacare”—and both
may be complicated enough to inspire many people to engage the services of a
professional tax preparer. Here’s what taxpayers need to know.
Penalty for failure
to carry “minimum essential coverage”
The health-care overhaul established a new federal
income-tax penalty for the failure to carry what it deems minimum essential
coverage. Last year was the introductory year for the penalty, which can
potentially be owed for any month when qualifying health coverage wasn’t in
You don’t have to worry about the penalty if you—and all
members of your family, if applicable—had qualifying coverage for all of last
year. In this case, simply check the box on line 61 of Form 1040, and you’re
If you didn’t have qualifying coverage for the entire year,
the first task is to determine if you are exempt from the penalty. For that,
see the instructions to new IRS Form 8965 Health Coverage Exemptions (and
instructions for figuring your shared responsibility payment). If you were
exempt for last year, file Form 8965 with your 2014 Form 1040 to prove it.
If you weren’t exempt, the next step is to calculate the
penalty amount that you owe using the work sheet in the instructions to Form
8965. Enter the penalty amount on line 61 of your return. For 2014, the penalty
can range from $95 or less to a good deal more for higher-income folks.
Also be aware that the penalty for 2015 and beyond can be much higher than the
penalty for last year.
The other Affordable Care Act-related change for 2014 was
the debut of the so-called premium assistance tax credit, or PTC. It is
available to eligible individuals and families who obtain health coverage in a
qualifying plan by enrolling through a state-run insurance exchange or through
the federal exchange (www.healthcare.gov).
In general, you are eligible for the credit if your
household income was between 100% and 400% of the federal poverty line and you
didn’t have access to affordable employer-sponsored coverage last year. The
allowable credit amount can vary widely depending on your specific
The PTC can be advanced directly to the insurance company to
lower your monthly premiums, or it can be claimed when you file your return.
You may not know the exact amount of your allowable PTC for last year until you
actually file your 2014 Form 1040. Calculate the PTC using the new IRS Form
If advance PTC payments were made on your behalf last year,
the amount of those payments should be reported by the exchange to you on the
new Form 1095-A, Health Insurance Marketplace Statement. You should receive
Form 1095-A by no later than early February. Then calculate the difference
between your advance PTC payments (if any) and the PTC amount you are actually
entitled to claim on Form 8962. Enter any excess PTC amount on line 46 of Form
1040 and pay it when you file.
The PTC is a “refundable credit.” That means you can collect
the full allowable credit amount even when it exceeds your federal income tax
liability for last year. Specifically, the PTC amount is first used to reduce
your federal income tax bill. After your bill has been reduced to zero, any
remaining PTC can be either refunded to you in cash or used to make estimated
tax payments for the 2015 tax year.
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