Many Californians were given peace of mind when they purchased subsidized health insurance under the Affordable Care Act.
But filing their federal income taxes will be more complicated this year, said tax professionals, who also warn that those who lived without coverage in 2014 could pay higher-than-expected penalties.
Forms are being sent this month to about 800,000 households statewide that used tax credits to lower the monthly premiums on the Covered California health plans they purchased last year. It is called Internal Revenue Service form 1095-A, and is essential for completing their tax returns or giving to their tax preparers.
Form 1095-A is a month-by-month accounting of how much the federal government advanced to insurers to help pay for health insurance for that family or individual. The federal subsidies, which are based on personal tax credits, averaged $5,200, or $436 a month in California last year.
The federal government advanced $3.2 billion in premium assistance in California with the first Obamacare enrollments last year, while consumers contributed $1.1 billion as their share of premiums, Covered California said.
Subsidies were granted to about 90 percent of Covered California enrollees in the five-county region including Stanislaus, San Joaquin, Merced, Mariposa and Tulare counties.
The tax credits were based on income estimates that people gave to Covered California when they applied for coverage. The federal government paid the tax credits in advance to insurers that offered the health plans. Now, it’s time to reconcile the estimated tax credits with incomes earned by those households in 2014.
Do-it-yourself filers will need their 1095-A to determine whether their Obamacare tax credit was appropriate. The information is needed to complete IRS form 8962, a rather daunting two pages which will require them to read the instructions in IRS Publication 5187, the 20-page manual that explains the tax rules and exemptions under the Affordable Care Act.
Some families may have to return a portion of the subsidy, for example, if the husband or wife got a new job and switched to employer benefits or one of them got a raise. A person who unexpectedly earned less could receive a larger tax credit.
Covered California has held webinars with an overview on the 1095-A process and will provide information on www.coveredca.com designed for consumers and tax preparers.
Officials said commercial tax software products should be able to accept the numbers from the 1095-A forms.
“We have been working with the IRS and the insurance plans for months to refine the process of issuing 1095-As,” said Peter Lee, executive director of Covered California. “We know it won’t be perfect, and we will learn things in the first year and make improvements before we do it again for 2015.”
Lee said people who see discrepancies on their forms should call the exchange; for example, if they disagree with the month coverage started or the premium assistance amount.
Professional tax preparers, such as H&R Block, have geared up to educate consumers or prepare tax returns for those who are confused.
“It’s going to be little complicated for do-it-yourself (filers) and we recommend they get in front of a tax professional,” said Michael Hayes, a senior tax professional at H&R Block’s district office in Sacramento.
Besides handling the tax-credit calculations, a professional service can help an uninsured person claim one of the 19 possible exemptions under the federal law.
Hayes said some taxpayers who were not insured for all or part of 2014 may be surprised by their tax penalties. The penalty was often reported in the media as $95, but that is for each adult in the household. The penalty per child is $47.50. The IRS will base tax penalties on the per-person rate or 1 percent of household income, whichever is higher.
The penalties will increase in 2015. Single adults could be charged $394 if annual earnings are $30,000 a year, $594 if earnings are $40,000 or $994 if earnings are $60,000 a year. A family of four earning an annual $30,000 could be charged $975 or $1,588 on income of $100,000.
Bee staff writer Ken Carlson can be reached at firstname.lastname@example.org or (209) 578-2321.