Friday, February 12, 2016

Affordable Care Act: Tax Facts for Individuals and Families



The Affordable Care Act includes the individual shared responsibility provision and the premium tax credit that may affect your tax return. This year marks the first time that certain taxpayers will receive new health-care related information forms that they can use to complete their tax return and then keep with their tax records.
Information Forms – Forms 1095-A, 1095-B and 1095-C


Depending upon your specific circumstances, the Health Insurance Marketplace, health coverage providers, and certain employers may provide information forms to you early in 2016. These forms can help you accurately report health coverage information for you, your spouse and any dependents when you file your 2015 individual income tax return in 2016. The Marketplace, health coverage providers, and employers will also file these forms with the IRS.
The information forms are:

  • Form 1095-A, Health Insurance Marketplace Statement: The Health Insurance Marketplace sends this form to individuals who enrolled in coverage there, with information about the coverage, who was covered, and when.  This is the second year in which the Marketplace is issuing Form 1095-A to enrollees.

  • Form 1095-B, Health Coverage: Health insurance providers – for example, health insurance companies – send this new form to individuals they cover, with information about who was covered and when. 

  • Form 1095-C, Employer-Provided Health Insurance Offer and Coverage: Certain employers send this new form to certain employees, with information about what coverage the employer offered. Employers that offer health coverage referred to as “self-insured coverage” send this form to individuals they cover, with information about who was covered and when.

The list below highlights key elements regarding these information forms:

  • The deadline for the Marketplace to provide Form 1095-A is February 1, 2016. 

  • The deadline for coverage providers to provide Forms 1095-B and employers to provide Form 1095-C is March 31, 2016.

  • If you are expecting to receive a Form 1095-A, you should wait to file your 2015 income tax return until you receive that form. 

  • Some taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2015 tax return. It is not necessary to wait for Forms 1095-B or 1095-C in order to file. Taxpayers may instead rely on other information about their health coverage and employer offer to prepare their returns

  • These new forms should not be attached to your income tax return. 

See our questions and answers that explain who should expect to receive the forms, how they can be used, and how to file with or without the forms, and that address various other questions you may have about these new forms.   
Individual Shared Responsibility Provision
The individual shared responsibility provision requires everyone on your tax return to have qualifying health care coverage for each month of the year or have a coverage exemption. Otherwise, you may be required to make an individual shared responsibility payment.
The list below highlights key elements of the individual shared responsibility provision:

  • If you maintain qualifying health care coverage for the entire year, you don’t need to do anything more than report that coverage on your federal income tax return by simply checking a box. Qualifying coverage includes most employer-sponsored coverage, coverage obtained through a Health Insurance Marketplace, coverage through most government-sponsored programs, as well as certain other specified health plans.

  • If you go without coverage or experience a gap in coverage, you may qualify for an exemption from the requirement to have coverage. If you qualify for an exemption, you use Form 8965, Health Coverage Exemptions, to report a coverage exemption granted by the Marketplace or to claim a coverage exemption on your tax return.

  • If for any month during the year you don’t have qualifying coverage and you don’t qualify for an exemption, you will have to make an individual shared responsibility payment when you file your federal income tax return.

  • The payment amount for 2015 is the greater of 2 percent of the household income above the taxpayer’s filing threshold, or $325 per adult plus $162.50 per child (limited to a family maximum of $975). This payment is capped at the cost of the national average premium for a bronze level health plan available through Marketplaces that would provide coverage for the taxpayer’s family members that neither had qualifying coverage nor qualify for a coverage exemption. The instructions for Form 8965, Health Coverage Exemptions, provide the information needed to calculate the payment that will be reported on you federal income tax return.

  • Form 1095-B will be sent to individuals who had health coverage for themselves or their family members that is not reported on Form 1095-A or Form 1095-C. Form 1095-A will be sent to individuals who enrolled in health coverage for themselves or their family members through the  Marketplace. Form 1095-C will be sent to certain employees of applicable large employers.

  • Some taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2015 tax return. It is not necessary to wait for Forms 1095-B or 1095-C in order to file. Taxpayers may instead rely on other information about their health coverage and employer offer to prepare their returns

Health Coverage Exemptions

Individuals who go without coverage or experience a gap in coverage may qualify for an exemption from the requirement to have coverage. 

  • You may qualify for an exemption if one of the following applies:

o    You do not have access to affordable coverage
o    You have a one-time gap of less than three consecutive months without coverage
o    You qualify for one of several other exemptions, including a hardship exemption

  • How you get an exemption depends upon the type of exemption. You can obtain some exemptions only from the Marketplace in the area where you live, others only from the IRS when filing your income tax return, and others from either the Marketplace or the IRS. For more information, visit IRS.gov/aca or see the instructions to Form 8965.

  • If you qualify for an exemption, you use Form 8965 to report a coverage exemption granted by the Marketplace or to claim a coverage exemption on your tax return.
Premium Tax Credit
For an explanation of the Premium Tax Credit see IRS Fact Sheet 2016-05, entitled “Tax Credit Helps Make Health Insurance Affordable for Middle-Class Americans.”
More Information

Remember that filing electronically with tax preparation software is the quickest and easiest way to file a complete and accurate tax return, as the software guides you through the filing process and does all the math for you.

For more information about the premium tax credit or the individual shared responsibility payment, visit IRS.gov/aca. For more information about the Marketplace, visit HealthCare.gov. For more information on the new health care related information forms, see the Form 1095 questions and answers.

Falsifying Income to Claim Tax Credits is on the IRS “Dirty Dozen” List of Tax Scams for the 2016 Filing Season



WASHINGTON — The Internal Revenue Service today warned taxpayers to avoid schemes to erroneously claim tax credits on their returns, which is on the annual list of tax scams known as the “Dirty Dozen” again for the 2016 filing season.

“Taxpayers should not falsify their income or other information on their tax returns to improperly claim tax credits,” said IRS Commissioner John Koskinen. "Misrepresenting facts is cheating and taxpayers are legally responsible for all the information reported on their tax returns.”

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their returns or hire professionals to do so.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

Don’t Fake Income

Some people falsely increase the income they report to the IRS. This scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income, usually in order to maximize refundable credits.

Just like falsely claiming an expense or deduction you did not pay, claiming income you did not earn in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in taxpayers facing a large bill to repay the erroneous refunds, including interest and penalties. In some cases, they may even face criminal prosecution.

Taxpayers may encounter unscrupulous return preparers who make them aware of this scam. Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is ethical and up to the task.

Choose Return Preparers Carefully

It is important to choose carefully when hiring an individual or firm to prepare your return. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to in order to increase their fee. Every year, these types of tax preparers face everything from penalties to even jail time for defrauding their clients.

Here are a few tips when choosing a tax preparer:
  • Ask if the preparer has an IRS Preparer Tax Identification Number (PTIN). Paid tax return preparers are required to register with the IRS, have a PTIN and include it on your filed tax return.
  • Inquire whether the tax return preparer has a professional credential (enrolled agent, certified public accountant, or attorney), belongs to a professional organization or attends continuing education classes. A number of tax law changes, including the Affordable Care Act provisions, can be complex. A competent tax professional needs to be up-to-date in these matters. Tax return preparers aren’t required to have a professional credential, but make sure you understand the qualifications of the preparer you select.
  • Check the preparer’s qualifications.  Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool can help you find a tax return preparer with the qualifications that you prefer. The Directory is a searchable and sortable listing of certain preparers registered with the IRS. It includes the name, city, state and zip code of:
    • Attorneys
    • CPAs
    • Enrolled Agents
    • Enrolled Retirement Plan Agents
    • Enrolled Actuaries
    • Annual Filing Season Program participants
  • Check the preparer’s history.  Ask the Better Business Bureau about the preparer. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to IRS.gov and search for “verify enrolled agent status” or check the Directory
  • Ask about service fees.  Preparers are not allowed to base fees on a percentage of their client’s refund. Also avoid those who boast bigger refunds than their competition. Make sure that your refund goes directly to you – not into your preparer’s bank account.
  • Ask to e-file your return.  Make sure your preparer offers IRS e-file. Paid preparers who do taxes for more than 10 clients generally must offer electronic filing. The IRS has processed more than 1.5 billion e-filed tax returns. It’s the safest and most accurate way to file a return.
  • Provide records and receipts. Good preparers will ask to see your records and receipts. They’ll ask questions to determine your total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.
  • Make sure the preparer is available.  In the event questions come up about your tax return, you may need to contact your preparer after the return is filed. Avoid fly-by-night preparers.
  • Understand who can represent you. Attorneys, CPAs, and enrolled agents can represent any client before the IRS in any situation. Non-credentialed tax return preparers can represent clients before the IRS in only limited situations, depending upon when the tax return was prepared and signed.  For all returns prepared and signed after December 31, 2015, a non-credentialed tax return preparer can represent clients before the IRS in limited situations only if the preparer is a participant in the IRS Annual Filing Season Program.
  • Never sign a blank return.  Don’t use a tax preparer that asks you to sign an incomplete or blank tax form.
  • Review your return before signing.  Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it.
  • Report tax preparer misconduct to the IRS. You can report improper activities by tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on IRS.gov.
To find other tips about choosing a preparer, better understand the differences in credentials and qualifications, research the IRS preparer directory, and learn how to submit a complaint regarding a tax return preparer, visit www.irs.gov/chooseataxpro.

Remember: Taxpayers are legally responsible for what is on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.