I received a phone call last week from the niece of a client who works as a waitress with an annual income of $18,000. Not able to afford professional tax preparation services, she had gone to the library to do her own taxes on the IRS Free File System. Really simple return. Single, no dependents, one W2. Files it electronically. Takes five minutes to file. Then three weeks later she gets a letter from the IRS asking her to complete IRS Form 8962 Premium Tax Credit. She attempted completing the form using the complicated formulas and the tables provided in the instructions and became confused. Could I help her?
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Sure! No problem! Piece of cake! Or so I thought.
Okay, I’ve been doing taxes for decades and I’m good at it. I know the basic principles behind the forms and I know my way around a calculator. But I swear, I think the math nerds at the IRS sit around making bets as to who can come up with the most mind-jarring formulas and forms. My tax software knows how to prepare this form, but when I attempted to do it manually, it took a while and while I succeeded at it, I wasn’t confident in my answer. I prepared her entire tax return again (her copy was on her phone) and let my software come up with the answer to ensure that I actually had run the numbers correctly. Good grief!
So if this is difficult for me, I imagine it’s going to be even more challenging to the greater pool of taxpayers who must deal with this form. And who are those taxpayers? They are primarily low income individuals and families who cannot afford professional tax help. Luckily, the IRS provides Free-Tax-Return-Preparation-for-You-by-Volunteers that can help you.
This is not the only new form you must deal with. There are several new forms all relating to ObamaCare. If you received Form 1095-A Health Insurance Marketplace Statement, it was sent to you because you applied for health insurance through one of exchanges on the Health Insurance Marketplace. Which means you will likely be required to complete Form 8962.
The 1095-A form is not issued by the IRS. It is issued by the Marketplace where you purchased your health insurance coverage. The forms were issued at the end of January, so you likely received it in early February. If you did not receive the form (many did not), contact the Marketplace directly to obtain a copy. You will need this form when completing your income tax return.
Form 1095-A provides the dates of coverage, the amounts you spent each month for the coverage, who in your household was covered and other information needed to complete Form 8962. The information on the 1095-A will be used to reconcile advance payments of the premium tax credit made on your behalf to your insurance provider and to calculate the premium tax credit you are claiming on your tax return. The IRS wants to compare the annual income you estimated to the provider with the actual income you declared on your tax return. If you made more than you anticipated, you will have to repay some of the premiums that were paid on your behalf.
You may receive more than one Form 1095-A if different members of your household had different health plans or if you updated your coverage information during the year or if you changed plans during 2015. Other life-changing factors such as birth of a child, marriage or divorce, will impact the calculations for the Premium Tax Credit.
Go to www.irs.gov to find instructions for completing these forms. If you are using tax software, you may be able to input your data and the software can calculate everything for you.
If you had health insurance coverage for the entire year and you did not purchase your policy through the Marketplace, simply check the box on Line 61 of Form 1040 and you are done with it.