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IRS-Issued Health Insurance Tax Tips for U.S. Taxpayers

March 6, 2014

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With the Affordable Care Act (Obamacare) now in place, U.S. taxpayers should be aware of the minimum health insurance requirements. From 2014 onwards, the U.S. Internal Revenue Service (IRS) will require all taxpayers to disclose about their health insurance coverage and exemptions, if any, in their annual tax return (‘individual mandate’, i.e. the basic minimum required health insurance coverage by an individual for him/herself and dependents during any month of the year). If they are below the required coverage level in any month without a qualifying reason, taxpayers would be liable to a shared responsibility penalty from the year 2015 (2014 tax return) onwards

In order to prevent taxpayers from falling prey to such a tax situation, the IRS recently released a few pointers that taxpayers should keep in mind when it comes to their health insurance coverage and taxes. AG Tax has prepared a brief summary on these key points to ensure taxpayers are more informed.

Health Insurance Tax Tips for U.S. Taxpayers

Health Insurance Marketplace

As the name suggests, the Health Insurance Marketplace is where taxpayers can select and participate in a health insurance coverage plan from a plethora of health insurance policies. Taxpayers can ensure they enroll in a plan which suits their requirement and is within their budget. An individual can still purchase a health insurance coverage plan for 2014 as the enrollment window is still open until the 31st of March, 2014 (Time Period: 1st October, 2013 to 31st March, 2014). The basic advantage of purchasing heath care coverage from the Marketplace is that one could be eligible for “Premium Tax Credit”, and can also take advantage of insurance at a lower premium under this credit.

Premium Tax Credit

With the help of the ‘Premium Tax Credit’ taxpayers with moderate levels of income (between one and four times the federal poverty level) can purchase health insurance coverage at more affordable rates. Purchasing insurance coverage through the Marketplace will automatically estimate the amount of credit the taxpayer can benefit from for 2014 (i.e. tax filing year 2015) based on his/her income details, number of family members and family member details. Thereafter, the taxpayer may choose to direct some or all of the credit towards the insurance policy premiums.

Situations under which a taxpayer may be eligible for this tax credit are:

–       Purchasing health insurance through the Marketplace

–       Being ineligible for employer or government provided plans

–       Having a moderate income level

–       Being married, and tax filing status is “Married filing Jointly”

–       Not claimed the taxpayer as a ‘dependent’ on any taxpayer’s return

Additionally, any change of situations (such as: change in income, or number of family members) at any time during the tax year need to be reported to the Marketplace since variation in the estimated advance payments and the actual receivable qualified credit amount could affect any refund or balance due when filing 2014’s tax return.

If a person has enrolled in a coverage plan from the Marketplace, he/she should have already received an advance benefit from this tax credit, provided they qualify; if not, it is advisable that the individual  contacts a professional regarding the situation.

Additional Information Regarding Health Plans & Employment Status

–       Salaried Taxpayers need to only (non-taxable) report their health insurance details on the W-2.

–       Self-Employed Taxpayers may claim a deduction (within qualifying limits) of the health insurance coverage premiums cost while filing their annual income tax return.

–       Health Flexible Spending Arrangements (FSAs) available through a taxpayer’s workplace have premiums which are pre-tax in nature and help reduce table income along with providing affordable health insurance coverage.

–       Employer-provided Health Savings Accounts (HSAs) are non-taxable benefits. Any additional contribution made by the taxpayer can be claimed as an ‘itemized medical expense’ deduction while filing the income tax returns.

–       Any withdrawal made from an HSA is non-taxable, provided it is utilized for qualified medical expense payments.

–       Money received from a workplace provided Health Reimbursement Arrangement (HRA) is often non-taxable.

Individual Shared Responsibility Payment

A gap in the existing health insurance coverage or unmet minimum coverage for an individual and his/her family during any month of the year without qualifying reason (IRS acceptable exemptions) could lead to the individual being liable to a tax penalty of 1% on their annual taxable Modified Adjusted Gross Income (MAGI) or $95 for each uninsured household member for 2014, also called the ‘Individual Shared Responsibility Payment. (Read: Affordable Care Act Penalty on Individuals with Less Than Required Health Insurance Coverage for more info.)

Taxpayers should be informed that the health insurance choices that they make for this year will have tax implications when  filing their tax returns for 2014, as the IRS will inquire about the existing insurance coverage of the taxpayer for himself/herself and dependent; and if there is any difference between the required and existing coverage, the taxpayer could be liable to the shared responsibility payment along with any tax payable.

Better Late Than Never

The last date to obtain health insurance coverage from the Marketplace is the 31st of March, 2014. After this date, any month with less than the minimum health coverage will be penalized. Therefore, it is highly recommended that individuals should immediately seek professional help and apply for additional coverage (if required) through their employer, government, or Health Insurance Marketplace if they have not yet met the minimum required health insurance coverage.


AG Tax LLP Can Help

If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.

Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws.

We can assist with:

  • Canadian Personal and Corporate tax returns
  • Cross Border Taxation and Business Planning
  • U.S. Personal and Corporate Taxation
  • Disclosure of Foreign Assets and other information filings
  • Retirement planning
  • Estate Planning, Inheritance tax advice

To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:

  • 416-238-5920 (Greater Toronto Area, ON)
  • 604-538-8735 (Greater Vancouver Area, BC)
  • 780-702-2732 (Greater Edmonton Area, AB)


Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.

ABOUTAylett Grant Tax, LLP
With offices across Canada, we are positioned to manage and process the full scope of your Canadian, US and US Canada cross-border tax filing needs.
12752 28th Ave, Surrey, BC, V4A 2P4
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With offices across Canada, we are positioned to manage and process the full scope of your Canadian, US and US Canada cross-border tax filing needs.
12752 28th Ave, Surrey, BC, V4A 2P4
104–4220 98 St NW Edmonton AB, T6E 6A1

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