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February 10, 2016

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Taxes and the Affordable Care Act, part 1: showing compliance

The IRS didn’t ask for the role of compliance monitor for the Affordable Care Act (ACA or Obamacare). In practice, however, that is what Congress has asked the IRS to do.

It’s a role that comes with many responsibilities. In this two-part post, we will explore some of them. Let’s start with the requirement that individuals indicate on their tax returns whether they have health insurance coverage that meets ACA standards.

There’s a box for this now on IRS Form 1040, as well as a line item (line 61) regarding the type of coverage you have.

Keep in mind, however, that the IRS will not be relying solely on you for this information. The IRS also receives information from other sources, such as employers and insurance providers.

There are three new tax forms that essentially function as proof of insurance.
The first of those is Form 1095-A, which is for people who purchased their insurance on government-run exchanges (i.e., online marketplaces).

There are also forms for who people who get their insurance at work. If you work for an employer that has less than 50 full-time employees, that form is Form 1095-B. If your employer has 50 or more full-time employees, the form is 1095-C.

Of course, there are other ways to get health insurance besides government exchanges and employers. It could be through a government-sponsored program, such as Medicare, or purchased directly from an insurance company.

The point is that under the ACA, everyone must have a level of coverage that is called “minimum essential coverage.” If you don’t have that level of coverage, or qualify for an exemption, the IRs is authorized to impose tax penalties. We will discuss those penalties in part two of this post.

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