The Impact of the Affordable Care Act on Taxpayers Mark Ciaramitaro - VP Health Care Services

May 21, 2014

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ACA has created a clear

intersection between

Health Care & Taxes

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Step into the mind of a Consumer • Overwhelmed with information

• Given the politics …don’t know what

sources of information to trust

• Unaware, confused and worried about

the Tax consequences

• On-going concerns about affordability

Affordable Care ActAffordable Care Act

Marketplace

MarketplaceOpen Enrollment

Open EnrollmentPremiumPremium

Tax Penalty

Tax Penalty

Individual

Individual

Mandate

Mandate

SubsidySubsidy

DeductibleDeductible

Tax CreditsTax Credits

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What could Tax Filers be facing in the upcoming Tax Season ?

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Six Major 2015 Tax Impacts

1) Health insurance coverage verification

2) Premium Tax credit “reconciliation”

3) Non-coverage Tax penalties

4) Exemption eligibility

5) New Tax form complexity

6) Estimating future Tax impacts

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1. Health Insurance Coverage VerificationPurpose: Indicate the period that individuals/household members were covered under qualified health plans

Issued by Health Marketplace

1095-A

Issued by insurance issuers, military, small employers and

self-insured employers

1095-B

Issued by larger (>50) employers for coverage of full-time employees

1095-C

CLIENT IMAGECLIENT IMAGE

Voluntary for 2014Voluntary for 2014

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ibute Potential Tax Filer issues

Tax filer awareness of need to save/bring notices

Late issuance and incomplete 1095 noticesDocumentation needed when 1095 not

issued

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2. Advance Tax Credit “Reconciliation”Purpose: Adjust the credit, based upon actual 2014 household income

Step 1. Determine Actual Premium Tax Credit

•Determine 2014 actual modified adjusted gross income (MAGI)•Compare to FPL family size bracket •Calculate share of premium cost as a percentage (2% to 9.5%) of MAGI •Subtract from benchmark premium in client's rating area to get the actual Premium Tax Credit amount

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•Calculate difference between Advance Tax Credit used in 2014 and the actual Premium Tax Credit

• If actual Premium Tax Credit is > the Advance Tax Credit used, client receives difference in the form of a refundable credit

• If actual Premium Tax Credit < the Advance Tax Credit used, an additional tax liability is applied to the federal tax return

Step 2. Compare to Advance Tax Credit used in 2014

Purpose: Adjust the credit, based upon actual 2014 household income

2. Advance Tax Credit “Reconciliation”

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Purpose: Adjust the credit, based upon actual 2014 household income

•Any tax liability* is further adjusted, based upon household income and filing status table

Step 3. Adjust the tax return based on difference

2. Advance Tax Credit “Reconciliation”

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Potential Tax Filer issues

Basic awareness of how the Premium Tax credit works and the need for reconciliation

Increased Tax preparation complexity (especially if only partial year coverage)

Refund and Taxes due impact due to overpayment of Premium Tax Credit

Potential return processing delays without proper documentation

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The Tax Penalty

Most Americans who do not get qualified health insurance coverage may

face a tax penalty

Most Americans who do not get qualified health insurance coverage may

face a tax penalty

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3. Two Methods of Tax Penalty AssessmentPurpose: Determine the tax penalty, based upon 2014 individual/household insurance coverage gaps

OR

1. Flat Fee Calculation Method

•$95 for every adult, $47.50 for non-covered dependent children under the age of 18

•Maximum family penalty is $285

2. Percentage Calculation Method

•1% x (MAGI – the household tax filing threshold)Example: Single person earning MAGI of $55,0001% x ($35,000 - $10,150) = $450

Apply whichever penalty amount

is greater

Apply whichever penalty amount

is greater

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Purpose: Determine the tax penalty, based upon 2014 individual/household insurance coverage gaps

3. Calculate impact on the tax return

•For clients receiving a tax refund, the tax penalty will reduce the refund amount

•For clients with a net *tax liability, the penalty will be added to their taxes •Max penalty must not exceed national average for a bronze plan.

3. Tax Penalty Assessment

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Potential Tax Filer issuesConfusion regarding amount of the Tax penalty and how its

calculated Increased complexity driven by variance in household member

coverage or partial coverage Tax refund or Taxes due impact Inability or unwillingness to pay Tax penalties

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The Tax Penalty

Most Americans who do not get qualified health insurance coverage may

face a tax penalty

Most Americans who do not get qualified health insurance coverage may

face a tax penaltyBut what about exemptions?But what about exemptions?

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There are 14 Exemption categories!

But they fall into 2 broad buckets

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4a.Tax Penalty Exemptionsa. Tax Return ExemptionsPurpose: Indicate individual/household who qualify for exemptions from tax penalties

Tax Return Only*

Not Lawfully PresentShort Term Coverage Gaps

Coverage Effective by May 1, 2014Income Below Filing Requirement

Tax Return or Marketplace

Unaffordable Coverage OptionsMember of Indian tribe

Member of Healthcare Sharing MinistryIncarceration

*Automatic exemptions – likely just require a checkbox

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4b.Tax Penalty Exemptions2. Marketplace Issued Exemption Certificates

Purpose: Indicate individual/household who qualify for exemptions from tax penalties

Marketplace Only*

Indian Health Service EligibilityMember of Religious Sect with Insurance Objection

15 Hardship Exemptions – Most Common

*Will likely be a key code number included

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Hardship Exemptions … and growing

Available via Marketplace Only

•Homelessness•Eviction / Foreclosure•Utility shut off•Domestic Violence Victims•Death of a Close Family Member•Disaster Victims•Bankruptcy•Medical Expenses – Unpaid

•Ill, Disabled, or Aging Family Members•Dependent Children w/out Insurance•Marketplace Eligibility Appeals Decision•Medicaid Ineligibility – non-expanded

states•Cancellation of Health Plan•AmeriCorps (State and National) / VISTA /

National Civilian Community Corps Members•Other Hardships

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Potential Tax Filer issuesAwareness of exemptions eligibility and

exemption submission process( via the FFM/SBM Marketplaces)

Getting proper Exemption documentation during Tax preparation

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5. Tax Form filing Implications ...

• Tax form complexity

• Tax form usage

• More time/Higher costs

• Mistakes, Delays, Amendments and Notices

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Potential Tax Filer issuesUnderstanding new 1040 lines and worksheets Coverage and exemption documentation

requirementsAbility to continue to use 1040EZ Where to go for answers to Tax questionsPotential media hyped political venting and

confusion during the Tax filing season

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ibute 6. Future Tax Impacts

• Implications of 2/15 Open Enrollment end date

• For those applying for Tax Credits -accurately estimating future income

• Calculating potential future tax penalty amounts and future eligibility for Exemptions

• IRS Tax Notices due to incomplete or inaccurate documentation

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In a nutshell, the upcoming Tax filer impact is pervasive and complex! Low awareness NEW 1095 insurance coverage verification notices

Confusing Tax credit reconciliation !

Surprising Tax penalty amounts and potentially frustrating penalty Exemption eligibility process

Increased complexity with new IRS line worksheets, schedules and forms

Difficulty ascertaining potential future tax impacts

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Needed industry actions to address the coming Tax filer confusion Timely release of new IRS Tax forms, instructions and guidance …so that the

industry can prepare …. and avoid processing delays HHS/CMS needs to consider Tax impacts and dialog with the Industry before

issuing further changes that impact tax filers. Focus around timely issuance of 1095 notices and alternatives if not notice is

provided Broad consumer education around Premium Tax credit reconciliation, penalties

and Marketplace Exemption process Thorough and complete Tax Preparer training, tools and access to help Comprehensive customer support and accurate software content for DIY

clients IRS should revisit 7216 limitations associated with Tax Preparers providing

Health Plan enrollment assistance … to help avoid future tax penalties