As a tax professional, you play an incredibly important role in helping your clients navigate all of the new Affordable Care Act (ACA) requirements and implications. There are several new source documents being introduced as part of ACA that require certain institutions to provide tax data to the taxpayer and IRS to assist in the tax prep process and to help track important information.
The following is a quick overview of each:
Starting Tax Year 2014:
Form 1095-A: Health Insurance Marketplace Statement
The Marketplace sends a copy of Form 1095-A to anyone who enrolled in a health plan with a copy to the IRS. This form provides the following information that is necessary for the taxpayer to compute the premium tax credit (Form 8962) and to determine whether or not the taxpayer is subject to the shared responsibility payment (ACA penalty):
- Monthly premium amounts
- Monthly premium amounts of the second lowest cost silver plan (benchmark plan)
- Monthly advance payments of the premium tax credit
- Health coverage for the year
Starting Tax Year 2015 (optional for 2014):
Form 1095-B: Health Coverage Statement
Form 1095-B is issued by a 1) government-sponsored program, 2) eligible employer-sponsored plan, 3) individual market plan or 4) miscellaneous coverage plan. The document is sent to the insured individual and the IRS and provides information about whether the taxpayer, spouse and dependents had qualifying health coverage (minimum essential coverage) for some or all months during the year. Individuals with minimum essential coverage are not subject to individual shared responsibility payment.
Form 1095-C: Employer Provided Health Insurance Offer and Coverage Statement
Employers with 50 or more full-time employees are required to file Form 1095-C with the employee and IRS. The document includes information about whether the employer provided qualifying health coverage to the employee, spouse and dependents for some or all months during the year. Form 1095-C is used to determine the following elements of ACA:
- Whether the individual shared responsibility payment applies
- Eligibility of employees for premium tax credit
- Whether the employer shared responsibility provision applies (beginning in 2015)
Good News for Tax Year 2014
The fact that Form 1095-A is mandatory for tax year 2014 is good news for clients who qualify for the premium tax credit, as it provides the necessary information to compute the credit. Since Forms 1095-B and C are optional for tax year 2014 and the IRS doesn’t expect many to be filed, it may be difficult for preparers to substantiate health care coverage, and consequently, determine whether clients are subject to the individual shared responsibility payment. According to the IRS, practitioners don’t have to obtain specific proof that their clients have adequate health coverage, but they should apply a reasonable level of common sense and do the best they can to make sure taxpayers are “representing in good faith” that they are covered.