Taxpayers not only need to know the rules regarding issues such as income they earn, deductions they can claim, and forms they must file, but they also need to understand how their health insurance status could impact their taxes. Here are five big ways that health insurance could matter when it comes to income tax issues.
If You Pay a Portion of Your Coverage Through Your Employer, the Bill is Paid With Pre-Tax Funds
Many people obtain insurance coverage through an employer. If you are one of them and your employer pays part of the premiums but you also pay part, then your portion is paid with pre-tax funds. This means you don't have to pay taxes on the money you use to pay for your healthcare premiums.
You Could Owe a Federal Tax Penalty if You Don't Have Qualifying Health Coverage
The Affordable Care Act requires that most Americans purchase healthcare coverage for themselves and for their children. Those who do not have minimum essential coverage will be subject to a tax penalty. However, the penalty on the federal level remains in effect only until 2019, after which the penalty amount has been zeroed out and taxpayers will no longer have to pay a tax if they don't have coverage.
You Could Owe a State Penalty in Future Years, Depending Where You Live
While the tax penalty imposed on the federal level under the Affordable Care Act has been eliminated after 2019, several states and Washington D.C. have passed their own health insurance mandates imposing a tax on local residents who fail to obtain qualifying healthcare coverage. If you live in a state that has passed this type of law, like California and Massachusetts, then you need to be covered to avoid owing state taxes.
You May Need to Pay Back Premium Tax Credits if You Underestimated Your Income
The Affordable Care Act entitles many Americans to tax credits to help subsidize their health insurance premiums if they obtain coverage on the individual marketplace. Unlike most tax credits, you don't just get them at the end of the year. The government subsidizes your premium costs throughout the year so you pay only a portion of premiums to the insurer. The amount the government pays is based on your estimated income. However, if you underestimate your income and you make more than expected, it is possible the government will give you too much money in subsidies and you will have to pay it back at tax time.
You Can Take a Tax Deduction if Health Expenses Exceed 7.5% of Income
In 2018, if your healthcare costs exceed 7.5 percent of your household income, you are allowed to take a tax deduction for covered expenses.
The rules for taxes and healthcare are confusing, so contact a Virginia tax lawyer for help if you aren't certain how the rules apply to you. Contact attorney Kevin Thorn as soon as possible by calling 703-752-3752.
