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Not Filing Tax Return May Lead To Loss of Health Care Subsidies

This tax-filing season was the first filing season where every taxpayer had to report their health care status on their tax return. In 2015, the IRS processed approximately 135 million tax returns and received nearly 12 million requests for extensions. More returns were expected to be filed this year because certain households can get health care subsidies only if they file a return.

tax on health insurance

Around 1.8 million households are expected to receive subsidies to help them pay for health insurance. To enjoy this benefit, they will have to file a tax return.

Furthermore, there is a penalty for not having health care coverage. The following is the fee/penalty for not having health care coverage in 2015 (you’ll pay the higher of these two amounts):

  • 2% of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,150 for an individual, is used to calculate the penalty).
  • $325 per person for the year ($162.50 per child under 18). The maximum penalty per family using this method is $975.

The following is the fee/penalty for not having coverage in 2014. You’ll pay the higher of these two amounts:

  • 1% of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,150 for an individual, is used to calculate the penalty.)
  • $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.

For those that cannot afford to buy health coverage, there are tax credits and subsidies. Forbes elaborates:

“Tax credits averaged $272 a month for the nearly 8.7 million consumers who took advantage of the credits in 2015. That works out to approximately $28.4 billion in tax credits for the year (before you get too excited, keep in mind that tax breaks for mortgage interest deduction property taxes for homeowners are subsidized to the tune of $200 billion per year).

“That’s a lot of money to simply walk away from… which is why the feds are hoping that taxpayers don’t pass on the opportunity. Why would they? Confusion over the need to file as it applies to income, penalties and subsidies. So to help, here’s some quick information:

  1. 1. You may not need to file a 2014 tax return for federal income tax purposes (see ‘Do You Need To File A Tax Return In 2015?’).
  2. 2. If you are not required to file a tax return, you are considered exempt from the shared responsibility payment and you do not need to file a tax return to claim the coverage exemption.
  3. 3. Failing to file a tax return or owing back taxes won’t disqualify you from obtaining health insurance coverage through the exchanges.
  4. 4. If, however, you are required to file a 2014 tax return and you did not have minimum health insurance coverage for all of 2014, you need to file form 8965 (downloads as a pdf). You’ll use form 8965 to claim an exemption from the shared responsibility payment or to figure the amount of the payment. (For more on exemptions, check out this post.)
  5. 5. All of that said, if you qualify for credits or subsidies, you must file a tax return in 2015 to reconcile the advance payments received in 2014 (this, directly from Treasury). If you received advance payments in 2014 and fail to claim the premium tax credit on a federal tax return, this could bar you from receiving additional advance payments. That’s a fancy way of saying that if you received health care tax credits or subsidies and you want to continue to receive those health care tax credits or subsidies, you are still required to file your federal income tax returns even if you would normally be exempt. Failure to file means you will be responsible for the full cost of your health care insurance and you may be asked to repay some or all of the 2014 advance payments of the premium tax credit.

“IRS is working to send out letters to taxpayers who haven’t filed that may need to file: don’t toss that letter in the trash. Open it and figure out what you need to do. If you do not receive a letter but know that you need to file, do it as soon as possible. If you’re on extension, great. If not, don’t let that be a barrier: file anyway.

“If you’re not sure whether you need to file, reach out to HealthCare.gov using their website or by phone at 1-800-318-2596.”