despite life’s uncertainties, the one thing you can be sure of is that tax season will start again. To prepare, you’ll need to spend some time gathering all of your health insurance and financial documents.
It’s understandable that you have a lot of questions about the documents you’ll need when it comes to health insurance and taxes. Maybe you’re wondering about tax dependents and health insurance, the definition of a premium tax credit, or whether you qualify for a small business health insurance tax credit.
Reading: How does health insurance help with tax
The health insurance system can seem complicated. Add taxes to the mix, and you may have even more questions about how health insurance will affect your taxes. The good news is that you can gain clarity by learning about some crucial aspects of health insurance, tax forms, and premium tax credits.
If you have an employer-sponsored health insurance plan, for example, you can expect to file a different health insurance tax form than if you have small business health insurance. In this article, we’ll go over how to find out what tax forms you should receive and whether or not you qualified for a premium tax credit.
what is a premium tax credit?
The Affordable Care Act includes a small business health insurance tax credit to encourage business owners to offer employees health insurance for the first time or keep coverage they already have. tax credits are subtracted directly from a person’s or company’s tax liability; therefore, tax credits reduce taxes dollar for dollar.
how the small business health insurance tax credit works
The health insurance tax credit is available to small businesses that pay at least half the cost of individual coverage for their employees. If your business and plan qualify, you can get a credit of up to 50% of the health insurance premiums you paid for employees, but not for you as a business owner.
To be eligible for the small business health insurance tax credit, you must:
- have fewer than 25 full-time equivalent employees
- have average wages less than $56.00 (irs indexes average wage for inflation and changes each year)
- Pay these premiums using an IRS-qualified agreement, usually an agreement that requires you to pay a uniform percentage (no less than 50%) of the cost of the premium for each enrolled employee’s health insurance coverage
If you are self-employed and your business (sole proprietorship or sole member LLC) was profitable during the year, you may be able to get a tax deduction for yourself, your spouse and your dependents. A tax deduction differs from a tax credit in that a deduction reduces your taxable income; thus, the value of the deduction depends on the taxpayer’s marginal tax rate, which increases with income. A self-employment health insurance deduction is available for the costs of medical insurance, dental insurance, and long-term care policies. You can deduct these costs up to the total of your gross earnings from self-employment.
what forms should you use on your taxes?
There are different forms you will use to report your health insurance on your taxes. It is important to note that these forms will vary depending on:
- how you got your health insurance (for example, from a marketplace or 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.
- Enter the amount you used to lower your monthly premium costs throughout the year.
- Based on your final year earnings, calculate the actual amount of financial aid you qualified for in 2021.
- compare the figure in step 1 with the figure in step 2. if there is a difference between the figures in step 1 and step 2, you will need to pay additional funds or receive a tax refund.
Form 1095-a, Statement from the Health Insurance Marketplace. — This form is used if you purchased health insurance in a private or government-sponsored marketplace. The form will include the information you need to complete Form 8962, which is used to receive a premium tax credit. In addition, you will need to complete Form 1095-A for each insurance policy you have. our staff can help you with questions you may have about the 1095-a when you work with ehealth to purchase your health insurance.
form 1095-b, health coverage. — Usually, your health insurance company will send you this form to show that you and your family had health coverage for all or part of the year. the form is not normally included on your tax return; however, it contains vital information that will help you complete your taxes correctly.
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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. Just like Form 1095-B, this form has vital information you’ll need to file taxes correctly; however, it will not be included on your actual tax return.
Form 8941, Small Employer Health Insurance Premium Credit: To figure the credit. For detailed information on how to complete this form, see the pdf instructions for form 8941.
If you have additional questions about which health insurance forms to consider during tax season, visit the official IRS website.
What does it mean to “reconcile” your premium tax credit?
If you bought a health plan in a private or government-sponsored marketplace and used premium tax credits, you’ll need to “reconcile” your premium tax credit. To do so, you must complete the following steps.
The good news is that Form 1095-a will help you complete steps 1-3 easily, so you can accurately determine whether you owe additional taxes or receive a tax refund.
and remember: if you didn’t take the premium tax credits you were eligible for during 2020, you must complete form 8962 to receive your tax refund!
what if I didn’t have any health insurance last year?
So what if you didn’t have health insurance last year? how could this affect your taxes? To get a better understanding of this situation, let’s review the Affordable Care Act.
In previous years, this could be a negative situation for those without health insurance. the mandate and sanction were meant to be another way to cover as many people as possible. however, this part of the law was unpopular.
As of 2019, there is no longer a federal tax penalty for not having health insurance. Even if you don’t have an exemption because you don’t have insurance, you can avoid the fee. however, at the state level, some places still impose a penalty.
So, in most states, the bottom line is that not having health insurance coverage doesn’t mean you’ll have to pay extra fees come tax season.
what if I have multiple types of coverage?
On the other hand, maybe you had multiple types of health insurance coverage in the past year. how does this affect your taxes?
For example, it is not uncommon or illegal to have two different health insurance plans. you can have a primary and secondary insurance plan. in this case, the secondary plan processes a claim for what is not covered by the primary plan.
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Why would someone have two health insurance plans? If, for example, you are covered by both parents’ plans, the primary insurance will be the one belonging to the parent whose birthday is the first in the calendar year. or if you also have an employer plan, the parent’s insurance plan may be online as secondary.
Another common situation is when you are married and both you and your spouse have an employer-sponsored plan. in that case, your employer’s plan is primary, and your spouse’s plan takes over as secondary.
or could have a primary insurance plan but also quality for medicaid. so Medicaid becomes your secondary insurance plan. one of the benefits of having multiple plans is that it is more likely that all or a large portion of your medical bills will be paid between both plans.
However, you still have to pay some out-of-pocket costs and meet each plan’s deductible before you’re covered. And when it comes to how various types of health insurance coverage affect your taxes, it will depend on the type of plan and the status of your premium tax credit.
What if you had small business health insurance? will it mean you qualify for small business insurance tax deductions? The good news is that as a small business owner, you can receive tax relief.
If you provide health insurance plans for your employees, you can deduct some of their costs when it comes time to file taxes. For example, you may be able to claim tax deductions for your monthly premiums, health savings account (HSA) contributions, or tax-advantaged dollars.
Tax-advantaged dollars are funds you set aside to help your employees pay for health insurance, even if you can’t afford a group plan. And since it’s common to pay 50% or more of the cost of your employees’ insurance, you can usually expect some tax breaks for this cost.
An HSA can be a great way to save money on healthcare and taxes, as you can set aside funds for healthcare-related expenses without paying taxes on them.
Whatever the case, ehealth can help you find an individual or small business health insurance plan that works for you and your family. an accountant can help you figure out how to get the most out of your health insurance plans.
how does good record keeping help at tax time?
Filing is easier when you keep good records. remember that your health insurer will send you the necessary information to complete your 1095-a form successfully. In addition, you may need to reconcile your premium tax credit and properly complete Form 8962 in order to receive your tax refund (if applicable). therefore, you can more easily understand how your specific health plan will affect your taxes at the end of the year by keeping good records.
Whether you’re an individual or small business owner purchasing health insurance, eHealth’s licensed insurance agents can help you determine if you’re eligible for any tax-advantaged Marketplace plans or sponsored health programs by the government. Our professionals also help small business owners with insurance plan-related administrative tasks that can ease some of the record-keeping burden. Contact us to learn more about your health insurance options or compare small business health insurance plans available in your area.
This article is for general information and may not be updated after publication. consult your own tax, accounting, or legal advisor rather than relying on this article as tax, accounting, or legal advice.
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