Did you obtain your health insurance coverage last year through Obamacare? Did you also receive Obamacare tax credits?

If your answer to both questions is yes, you need to have IRS Form 1095-A. You can’t file your taxes without it.

Health insurance for the self-employed

When you’re self-employed, you don’t have an employer to provide you with health insurance. In the past, it could be hard for self-employed people to obtain health coverage. Getting medical insurance was especially true if they had a preexisting condition.

All this changed when Congress enacted the Affordable Care Act in 2010. Now anyone can obtain health insurance. Insurers can’t deny you coverage if you have a preexisting condition.

You can get Obamacare coverage online through a health insurance exchange. Nowadays, several states have their own exchanges. But the majority use the federal exchange at www.healthcare.gov. These exchanges are also called “marketplaces.”

Obamacare health coverage mandate through 2018

One of the most significant changes created by Obamacare was the health insurance mandate. During 2014 through 2018, all Americans had to have at least minimal comprehensive health insurance coverage. If you lacked coverage, you had to pay a penalty to the IRS.

The health insurance mandate applies to the self-employed as well as everybody else. Congress ended the individual healthcare insurance mandate starting in 2019. But still in place for 2018. When you file your 2018 tax return, you must show that you had coverage or pay a penalty.

Obamacare health insurance tax credits

Another revolutionary feature of Obamacare was the creation of health insurance premium tax credits. These ensure that moderate and lower-income people don’t have to spend more than a specified percentage of their income on health insurance. These percentages range from 3.0% to 9.5%, depending on household income.

You are eligible for the premium credit if:
• Your household income is between 100% and 400% of the federal poverty level
• You do not qualify for other affordable coverage
• You file a joint tax return if you’re married

For 2018, the credit was available for individuals with household incomes below $48,240. And it was available for families of four with incomes below $98,400.

Most people who obtain their health insurance through the Obamacare exchanges qualify for these tax credits. These credits can pay for all or most of your health insurance costs. The exact amount you receive depends on your income and family size.

You don’t need to owe any income taxes to receive the credit. Moreover, the federal government pays the credit amount directly to your health insurance company when you enroll in your health insurance plan.

Form 1095-A show your tax credit payments

You would receive Form 1095-A if you received Obamacare tax credits. Your health exchange completes the form, not the IRS. According to the rules, you should receive it by mail no later than mid-February. It is also available online at your account on your health insurance exchange. Your health exchange also sends a copy of the form to the IRS.

Form 1095-A shows how much your Obamacare health insurance coverage cost during the year. It also shows the amount of the tax credits paid on your behalf.

Be sure to check the information on the form. Make sure it’s right. If anything looks wrong, contact the Marketplace Call Center.

Use Form 1095-A information to complete your tax return

You don’t file Form 1095-A with your taxes. Instead, you use the information on the form to complete your federal income tax return.

Form 1095-A provides the information you need to complete IRS Form 8962, Premium Tax Credit (PTC). You must complete Form 8962 and file it with your tax return if you received any Obamacare tax credits during the year.

Use Form 8962 to “reconcile” your tax credit payments. Reconciling means you make sure your tax credits weren’t too big based on your income and family size.

You might need to repay your Obamacare tax credits

When you apply for Obamacare, you need to figure what your family income for the year will be. If you estimate it will be below 400% of the federal poverty level for a family your size, you’re eligible for tax credits. Your estimated income and the amount of your health insurance premiums determines the amount of your credit.

Most people have the tax credit paid during the year to their health insurance provider. This process works out fine if your estimate of income for the year is accurate. But what if it turns out you underestimated your annual income? You’ll have to pay back all or part of your tax credits when you file your income taxes for the year.

The amount you’ll have to pay back depends on your family income. If your income is below 400% of the federal poverty level, there is a cap on the amount you’ll have to pay back. However, at higher income levels, you’ll have to pay back the entire credit amount you received. This amount could be a lot.

For example, about 3.3 million people who received premium assistance in 2015 had to repay part of the subsidy when they filed their 2015 taxes. The average amount repaid was $870. If you don’t pay back the amount due when you file your taxes, the IRS will deduct it from your tax refund, if any.
You calculate the amount you have to repay by completing Form 8962.

Example:

Ernesto Francisco obtained health coverage through the California health insurance exchange. He estimated that his 2018 income would be $30,000. Based on his age and income, he qualified for a credit of $316 per month, or $3,792. These amounts are on the Form 1095-A issued by the exchange.

However, it turned out that Ernesto had a better year than he previously estimated: He actually earned $45,000 in 2018. Based on this income, he was entitled to premium assistance of only $109 per month, or $1,308.

Ernesto received $2,484 more in assistance than he should have. However, he has to pay back $1,275 because this is the cap for people at his income level.

Had his income been $48,561 or more, he would have to pay back the entire $3,792.

Word of caution

It’s complicated to calculate whether you received the right amount of Obamacare tax credits. You can find a step-by-step guide at https://www.healthcare.gov/taxes-reconciling/

If you prepare your taxes personally, do yourself a favor and use tax preparation software to figure this out for you.

Stephen Fishman

Stephen Fishman

Stephen Fishman is a self-employed tax expert and regular contributor to MileIQ. He has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for entrepreneurs, independent contractors, freelancers and other self-employed people. He is the author of over 20 books and hundreds of articles, and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Visit Fishman Law and Tax Files for more information on his work.
Stephen Fishman