The State of the ACA and Its Effect on Your Taxes

January 7, 2019

For better or worse, the Trump Administration and Republican-controlled Congress have made no bones about undermining key provisions of the Affordable Care Act (ACA). But how exactly has the ACA changed? And how will taxpayers be affected by these changes when it comes to their 2018 tax bills?

How Has the ACA Changed?

Despite the Trump Administration’s stated desire to repeal the ACA and replace it with something else, the ACA has continued to provide health insurance to millions of Americans who need it. True, insurance premiums have climbed for most enrollees, and more citizens have opted out of coverage. But the ACA has, for the time being at least, survived.

What the Trump Administration has done is to try to shift many components of the ACA away from the federal government. For example, the administration has:

  • Significantly scaled back ACA outreach and education programs, including funding for the navigators who help consumers find coverage
  • Terminated reimbursement payments to insurers for reducing cost-sharing for low-income enrollees
  • Essentially ended the federal government’s Small Business Health Options Program (SHOP), which helped employers find coverage for their employees
  • Created an alternative individual health coverage market that uses Association Health Plans (AHPs) to cover individuals and small groups
  • Shifted to the states the job of making certain that health insurers offer adequate provider networks and access to essential community providers
  • Transferred to private web brokers the responsibility for enrolling people in the marketplace

Perhaps most importantly for taxpayers, the 2017 Tax Cuts and Jobs Act (TCJA) changed the federal tax code to roll back some of the ways the ACA had been funded in the past.

How Will My 2018 Taxes Be Affected by the ACA?

The current state of the ACA may have an impact on certain line items of your 2018 taxes:

The Individual Mandate Penalty

Under the ACA, you were required to have a qualified health insurance plan for at least nine months out of the year, whether through the federal exchange, your employer, a state exchange, or directly from an insurance company. This was called the “Individual Mandate.” If you didn’t have insurance, you were required to pay a penalty to the IRS come tax time.

The TCJA abolished the individual mandate. But this change won’t take effect until 2019, so you’re still on the hook for 2018. The penalty for not having health insurance is $695 per uninsured adult (half that amount per child), up to $2,085 per family, or 2.5 percent of household income above the tax filing threshold.

The Premium Tax Credit

Qualifying individuals and families can receive a premium tax credit to help them purchase health insurance through the federal exchange. If you qualify, you can receive this credit as an advance payment at the beginning of the year, which helps to ease your health insurance burden.

If your circumstances change during the year, though, you may find that you qualify for more or less credit. Changes to your household, income, or family size could affect the amount of premium tax credit you’re entitled to. When tax time arrives next April, these changes can alter your tax refund or cause you to owe tax. It’s important that you plan for reconciling your advance credit, especially if you know you will be due less credit than you initially received.

Other Taxes that Cover ACA Funding

A number of taxes, primarily on higher-income taxpayers, continue to be collected by the IRS to cover the cost of operating the ACA. One of these is the Net Investment Income Tax (NIIT) – a 3.8% surtax added to various earnings on investments (dividends and capital gains) above $250,000 – the calculations for which are fairly complex.

Taxpayers who earn $250,000 or more with married filing jointly status are also obligated to pay extra Medicare Tax. (Limits are $125,000 if married filing separately or $200,000 if filing single). If your income is higher than those limits, you must pay an additional 0.9% in tax to the employee component of your Medicare tax contribution. (The employer’s portion of the Medicare contribution doesn’t change).

A knowledgeable tax accountant can help you to determine how best to handle your tax reporting with respect to healthcare coverage issues and tax form preparation.

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