People often ask How Does Marketplace Insurance Affect Taxes? Well buying health insurance can be good or bad for your taxes, depending on where you get it, the type you choose or whether you decide to get it at all. Knowing how health insurance affects taxes can help you plan better for tax time.
Whether you qualified for a premium tax credit, or might owe additional funds, your health insurance does impact your tax return. Some of the main tax forms do l watch are 1095-A, 1095-B, and 1095-C. We’ll explain how to know which of these tax forms you should receive.
What forms should you use on your taxes?
There are different forms that you will use to report your health insurance on your taxes. It is important to note that these forms will vary, based on:
- How you received your health insurance (e.g., from a marketplace or from an employer or union),
- If applicable, the type of health plan you purchased, and
- If you had a marketplace plan and used premium tax credits to lower your insurance costs throughout the year.
Form 1095-A, Health Insurance Marketplace Statement. — This form is used if you have purchased health insurance from a government-sponsored or private marketplace. The form will include the information that you need to complete Form 8962, which is used to receive a premium tax credit. Additionally, you will need to complete Form 1095-A for each insurance policy that you had for 2019.
Form 1095-B, Health Coverage. — Your health insurer will typically send you this form to show that you and your family had health coverage throughout all or part of the year. With this in mind, this form is not typically included in your tax return; however, it does contain vital information that will help you to fill out your taxes properly.
Form 1095-C, Employer-Provided Health Insurance. — If you received health insurance for all or part of the year from an employer or union, your employer or union will send you Form 1095-C. Like Form 1095-B, this form has vital information that you will need to file taxes, properly; however, it will not be included in your actual tax return.
If you have additional questions about which health insurance forms to look out for during tax season, visit the official IRS website.
How Does Marketplace Insurance Affect Taxes?
Whether you get your health insurance through an employer or the Health Insurance Marketplace, it’s important to understand how health insurance affects taxes so that you’re better prepared to file your tax return.
When the Affordable Care Act (ACA) was enacted in 2010 , the law made health insurance more widely available for some people. But it also made things a little more complicated for some during tax season.
Employer-sponsored health insurance
If your employer offers health insurance as a benefit and you pay a portion of the plan’s premium, your part of the bill is paid with pre-tax dollars . This means the amount isn’t subject to withholdings for federal or state income tax, or Social Security and Medicare taxes .
The amount of federal and state income taxes withheld can depend on your income and how many allowances you claim on your W-4 form. As of 2017, the total Social Security and Medicare tax rate is 15.3 percent. Your employer must pay half of that, so you’ll see 7.65 percent automatically withheld from each paycheck.
The health insurance exchange
If your employer doesn’t offer a health insurance plan or you’re self-employed, you can get a health insurance policy through HealthCare.gov.
Depending on your income level, you may qualify for the premium tax credit to help offset the cost of your monthly premiums. The amount of the credit is on a sliding scale , and you may be eligible if your household income for the year is at least 100 percent but no more than 400 percent of the federal poverty line for your family size.
“You can elect to have the federal government pay a portion of the insurance premiums upfront, or you can get the subsidy when you prepare your return ,” says Jeffrey Schneider, an enrolled agent and certified tax resolution specialist. In order to get an upfront payment, you must estimate your income for the year you want coverage.
Since it can be hard to estimate future income, you might get more advance payments than you qualify for. If so, you would have to pay back the difference when you file your federal income tax return. Healthcare.gov provides guidance on estimating your expected household income.
If you’re self-employed, you may also be able to deduct the amount your paid for health insurance for you, your spouse and your children.
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What does it mean to “reconcile” your premium tax credit?
If you purchased a health plan from a private or government-sponsored marketplace and used premium tax credits, you will need to “reconcile” your premium tax credit. To do this you will complete the following steps.
- Write down the amount you used to lower your monthly premium costs throughout the year.
- Based on your final income for the year, calculate the actual amount of financial aid that you qualified for in 2019.
- Compare the figure from Step 1 with the figure from Step 2. If there is a difference in the figures from Step 1 and Step 2, then you will need to either pay additional funds, or receive a tax refund.
The good news is that Form 1095-A will help you to complete Steps 1-3 easily, so that you can accurately determine if you owe additional taxes or if you will receive a tax refund.
And remember: If you didn’t take premium tax credits for which you were eligible throughout 2019, you must complete Form 8962 to receive your tax refund!