Tax season is here, and the federal Affordable Care Act mandating minimum health insurance coverage nationwide brings with it what's labeled as the biggest group of changes to the U.S. tax code in 20 years.
Massachusetts filers used to dealing with the state's mandated health-care coverage requirement on their state income taxes since the 2007 tax year now must address their insurance status on their federal income tax returns for the first time.
"What's most important is to be aware if your taxes are impacted," said Nancy Lebeau, master tax adviser and an enrolled agent for H&R Block in North Andover. "There are so many moving parts to the Affordable Care Act that H&R Block started preparing in 2010 and training all of its tax professionals."
The impacts on individuals' federal income tax returns depend on whether they have health insurance and when they obtained it, and if they purchased it through the state insurance marketplace known as the Massachusetts Health Connector.
Individuals with private insurance, Medicare or Medicaid should see no impact and simply have to check a box on their federal tax returns.
Those who don't have insurance may be subject to a penalty on their federal income taxes just as they are on their state returns.
But there are more than 30 exemptions that could help, including exemptions if you're uninsured for less than three months of the year, for households whose income level is below the minimum filing amount or for non-U.S. citizens without valid immigration documentation.
The federal penalty — called a "shared responsibility payment" — is the higher of either a flat-fee $95 for each adult and $47.50 per child under 18 up to $285 per household or 1 percent of your annual household income, less the minimum filing amount. The penalties increase significantly for the 2015 and 2016 tax years.
Individuals who face both the federal penalty on their federal tax returns and a Massachusetts penalty on their state returns will see the latter reduced.
For individuals who purchased insurance through the health insurance marketplace, their tax liabilities/benefits also will depend on whether they qualified for an advance premium tax credit — government assistance to lower their monthly health insurance premiums — and if their estimated household income at the time held through for the year.
Those who did receive tax credits will receive a 1095-A tax form from the marketplace indicating the amount.
Filers may forget about the tax credits because they didn't directly receive them, as they were instead paid right to their insurance providers, according to Lebeau.
"In some cases, people may break even — they got the proper amount based on what they estimated (for household income)," Lebeau said. "Others may have estimated incorrectly or there could have been a job change or income change the rest of the year, and they may have gotten too much of a credit … and they may have to pay it back. It's taken from the tax refund."
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