NEW YORK (MainStreet) — The biggest change to 2014 tax returns comes from the Affordable Care Act (ACA) – aka Obamacare. Everyone is talking about how Obamacare will complicate your 2014 return, so let me join the group.

First there is the individual shared responsibility requirement.

Under the individual shared responsibility provision of the Affordable Care Act, you and each member of your household must have had minimum essential health insurance coverage for all of 2014. If you, or any members of your household, did not maintain coverage for the entire year, and do not qualify for one of the exemptions, you will need to pay an individual shared responsibility penalty on your 2014 tax return.

Qualifying coverage includes insurance provided by your employer, including insurance your employer provides you as a retiree, COBRA coverage, insurance purchased through the Obamacare Health Insurance Marketplace, most government-sponsored coverage (such as Medicare and veterans’ health coverage administered by the Veterans Administration) and policies you purchase directly from an insurance company.

In future years, individuals who are covered by health insurance will be issued Form 1095-B by their insurance provider or Form 1095-C by their employer. While these information returns are not required to be sent out this year, some insurance providers may be issuing Form 1095-Bs.

If you had minimal essential health insurance coverage for all of 2014, you check the box for “Full-year coverage” at Line 61 of Form 1040, or at Line 38 of Form 1040A., the official website of the Obamacare Marketplace, tells us that your household consists of -

  • yourself
  • your spouse (this applies to legally married couples, whether opposite sex or same-sex),
  • your children who live with you, even if they make enough money to file a tax return themselves,
  • anyone you include on your tax return as a dependent, even if they don’t live with you, and
  • anyone else under 21 who you take care of and lives with you.

However you do not have to include someone who lives with you who meets all of the following criteria –

  • is not your spouse or dependent,
  • files his own taxes,
  • earns his own income, and
  • is covered by his own insurance.

According to the IRS, household income is the Adjusted Gross Income (AGI) from your tax return, and the AGIs of all dependents who are required to file tax returns, plus any excludible foreign earned income and tax-exempt interest.

The calculation of the penalty is complicated. One of the issues with having Obamacare administered via the tax return is the fact that many individuals will have to add insult to injury and pay a tax professional a fee to be charged a penalty.

The penalty is based on the greater of 1% of your household income above the threshold for your filing status, or your family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285. The amount may not exceed an amount equal to the national average premium for bronze level qualified health plans, so the penalty assessment could equal the cost of actual insurance coverage.

Because household income begins with your Adjusted Gross Income, you can reduce the amount of the individual shared responsibility penalty by making, or increasing, a deductible IRA or self-employed retirement plan contribution.

The penalty is reported on Line 61 of your 2014 Form 1040, or line 38 of your Form 1040A. There is no special form to attach.

You are exempt from the individual shared responsibility penalty if -

      • you are uninsured for less than three months of the year.
      • the lowest-priced coverage available to you (based on where you live and your age and the ages of the members of your household) would cost more than 8% of your household income. To look up the lowest-priced premium click here.
      • you don’t have to file a tax return because your income is too low.
      • you are a member of a federally recognized tribe or eligible for services through an Indian Health Services provider.
      • you are a member of a recognized health care sharing ministry.
      • you are a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare.
      • you are incarcerated (either detained or jailed), and not being held pending disposition of charges.
      • you are not lawfully present in the U.S.
      • you qualify for a hardship exemption. For more information on qualifying hardships click here.

You will use new IRS Form 8965 to claim an exemption from the individual shared responsibility penalty.

The ACA penalty will reduce the refund or increase any balance due on your 2014 income tax return. Generally, if you don’t pay in full, the balance due on your tax return the IRS has several options, including attaching a lien to your wages, bank accounts or personal assets and criminal prosecution, for collecting the tax due.

But there is no enforcement mechanism for collecting the individual shared responsibility penalty other than reducing a taxpayer’s current and future refunds. The Affordable Care Act does not permit the IRS to file a Notice of Tax Lien for failure to pay the penalty. And no criminal prosecution or penalty may be imposed on anyone for refusing to pay the penalty.

--Written by Robert D. Flach for MainStreet