Tax season is only a few weeks each year, but it often feels like that staying on top of your finances is a year-round occupation. For 2021, you have until May 17th to file your 2020 tax return and pay any tax owed. To prepare for tax day, you need to start collecting all your documents, including your health insurance.
Your health insurance has a big impact on your taxes, regardless if you got it from the marketplace or an employer. Understanding the relationship between health insurance and filing taxes should prepare you when you file your Form 1040, Individual Income Tax Return.
Here’s a quick guide to get you started.
How does health insurance affect my taxes?
When the Affordable Care Act (ACA) was passed in 2010, it contained an individual mandate provision that required all United States citizens and permanent residents (also known as Green Card holders) to have health insurance, whether through an employer or by buying coverage from the Health Insurance Marketplace, or risk facing penalties.
The individual mandate was eliminated at the federal level when the Tax Cuts and Jobs Act was passed in 2017. This means you no longer have to pay a penalty if you do not have health insurance beginning with 2019. You still need to report coverage or pay the penalty for tax years 2017 and 2018.
However, the District of Columbia and the states of California, Massachusetts, New Jersey, Rhode Island, and Vermont have mandated health insurance coverage for residents. If you are a resident of these jurisdictions, you may face a penalty on your state tax return if you do not have health insurance.
What’s the Premium Tax Credit?
You need to report your health insurance coverage if you are enrolled in health insurance through the Health Insurance Marketplace and you received advance payments of the Premium Tax Credit (PTC).
The Premium Tax Credit is a subsidy that helps individuals and families cover the cost of their health insurance premiums. To enjoy the benefits of the PTC, you must meet certain requirements and file a federal tax return with Form 8962, Premium Tax Credit.
To be eligible for the Premium Tax Credit, your household income should fall between 100% and 400% of the poverty level. Your household income includes income from you, your spouse, and your dependents.
Your health plan should also come from the Health Insurance Marketplace. Access to an employer-sponsored health plan is usually a disqualifying factor unless you can’t afford the plan. In that case, you’ll need a letter from your employer stating that you qualify for the Premium Tax Credit.
How do I report my health insurance?
Check your Form 1095-A, Health Insurance Marketplace Statement, for information about your health plan and payments. This form, along with Form 8962, are the two documents you need to claim the Premium Tax Credit.
You will get a Form 1095-A after purchasing a health insurance plan through the Health Insurance Marketplace. This document contains the information you need to successfully fill out Form 8962. If you or your family members are enrolled in multiple plans from the marketplace, you will receive a separate Form 1095-A for each health care plan.
If you have not received your Form 1095-A, log in to your HealthCare.gov account and download a PDF copy of the tax form.
You do not need to attach Form 1095-A to your federal income tax return, although it helps to have a personal copy or two for safekeeping. File Form 8962 with your federal tax return.
How do I file my tax return?
Filing a tax return is already stressful enough without the complexities of health insurance and its impact on your taxes. If you’re not sure about your next step, talk to a tax expert. At TFX (Taxes for Expats), you will find all the help you will need.
Veronica Rhodes from TFX
TFX is a women-owned tax firm that offers all U.S. tax services — for both American citizens and non-citizens with U.S. tax filing requirements. From straightforward expat tax preparation to complex cases involving multiple factors — we’ve handled it all for over 25 years.