Signed into law on March 23, 2010, the Patient Protection and Affordable Care Act (also known as the Affordable Care Act, ACA, or ObamaCare) has been in effect for long enough for most of the issues to be resolved and enacting regulations to be in place. In terms of its impact on tax law, however, that’s not the case.
Reviews of the health care law have been mixed, mostly breaking along partisan political lines. Advocates point to the decline in the number of uninsured Americans, down from 23% in 230210 to 11 today, according to surveys from the Centers for Disease Control and Gallup. That figure is expected to decline even more dramatically in 2016, when substantial penalties are imposed for not being insured. Critics point to the number of health care exchanges (nearly 50 percent of them, according to Forbes), and to the escalating costs of premiums, co-pays and out-of-pocket expenses.
Despite the surrounding controversy, the ACA has proven litigiously and politically resilient. It has been upheld by the US Supreme Court on two separate occasions – once in 2012 (NIFIB v Sebelius) and again in 2015 (King V Burwell) – and it has survived more than 50 legislative attempts to overturn all or part of it. The most recent of which was this month, as part of the federal budget. And at the outset of the 2016 tax season, here are the elements of the law (and clarifications thereto) that will affect tax preparers:
- The penalty for failure to have health insurance under the individual mandate increases to the higher of 2 percent of yearly household income or $325 per adult (and $162.50 per child under 18) per year, with a maximum penalty per family for those using this method of $975, according to HealthCare.gov. At the same time, federal poverty level guidelines, used to determine subsidies for care, have increased.
- The Consolidated Appropriations Act of 2016 made changes to the medical device excise tax; excise tax on high cost employer-sponsored health coverage; and the annual fee on health insurance providers. See the Effect of the Consolidated Appropriations Act on ACA Provisions web page for details of the changes.
- Large employers who have 50 or more full-time equivalent employees must offer affordable, minimum essential coverage to those employees and their dependents, or be subject to an employer shared responsibility penalty.
- There are two new ACA forms for this year. Forms 1095-B and Form 1095-C, which were optional for calendar year 2014, must be filed by any entity that provides minimum essential coverage to an individual (1095-B) or any applicable large employer (Form 1095-C) who had on average at least 50 full-time equivalent employees during calendar year 2014. The filing deadline for these two forms has been delayed. Form 1095-A, issued by health care exchanges, will be the same as last year. Taxpayers should wait to receive the 1095-A before filing, but need not wait for the 1095-B or 1095 C. None of the three forms need to be attached to the tax return, but should be kept on file.
While not focused on the ACA specifically, other changes to the tax law will have a substantive impact on tax preparation for individuals, small business, and large businesses. Changes that focus on individuals and small business include:
- Taxpayers will have until April 18, 2016, to file their 2015 individual returns and make their first 2016 estimated tax payments due to the Emancipation Day holiday on April 15. Taxpayers in Maine and Massachusetts will have until April 19, 2016, to file their returns so they can observe Patriots Day on April 18.
- The standard deduction for Heads of Household will increase by $50 to $9,300 for 2016. No such increase was provided for single or married couples filing jointly or separately.
- States must recognize all married couples regardless of gender.
- Congress passed legislation covering the 52 ongoing “Tax Extenders.” Tax breaks made permanent under the law include the $1,000 child tax credit; the American Opportunity Credit of up to 40 percent of tuition expenses for education; The Earned Income Tax Credit; the “Teachers Above the Line’ tax credit of $250; and the deduction of state and local general sales tax. Business credits made permanent included the Section 179 write-offs for equipment deductions and the R&D credit. Extended credits for up to two years were the discharge of qualified principal residence indebtedness; mortgage insurance premium deductions; and above-the-line tuition deductions of up to $4,000.
In addition, the IRS summarizes its advice to tax professionals as well as a bevy of ACA-related content from its ACA page.