Tax season is the time of year when taxpayers prepare financial statements and reports for the previous year to submit their tax returns. In the United States, this is generally between January 1 and April 15. As tax season is underway, knowing how your health insurance affects your taxes can help you plan better for tax season.
Generally, you can get health insurance through an employer or an insurance exchange, otherwise known as the Marketplace. But did you know, where you get your health insurance from can have an effect on your tax returns?
Let’s take a look at the most popular below, helping you to decide which is best for you and also how this can impact your tax returns.
Employer-sponsored Health Insurance
This is insurance obtained through an employer and is the most common way Americans get insurance. It can include not only insurance for current employees and their families but can also include retired employees.
If your employer pays your health insurance premiums, the premiums are exempt from federal income and payroll taxes. Furthermore, if you pay a portion of health coverage provided by your employer, the premiums are typically excluded from taxable income.
Employer-sponsored health insurance is usually cheaper than an exchange plan because employers often contribute to the cost of their health insurance plan as a benefit to their employees.
Health Insurance Exchange/Marketplace
If you are self-employed or your employer doesn’t offer health coverage, you can purchase a policy for you and your family through the Marketplace. This is commonly referred to as public health insurance exchanges, developed by the government because of the Affordable Care Act (ACA). Private health insurance companies list their health plans with the exchange, and people comparison shop from among the available health plan listings.
How Health Insurance Can Affect Your Taxes
If you obtained health insurance through your employer in the previous year, they might send you tax forms for your health coverage but you won’t need one to file your income taxes.
If you purchased your policy through the Marketplace at any point in the previous year, you must file a federal income tax return, regardless of your income level. Your premium tax credits will affect the amount of tax return or tax owed.
The steps you need to take will vary depending on your situation:
- If you purchased a Marketplace plan with premium tax credits. You will receive Form 1095-A in the mail, which you can use to fill out Form 8962, Premium Tax Credit, to reconcile your tax credits. Make sure the information in your 1095-A is correct before filing your taxes. You only need to attach Form 8962 to your federal tax return. Keep your Form 1092-A and do not attach it to your tax return.
- If you purchased a Marketplace plan without premium tax credits. You will receive Form 1095-A in the mail, and you need to make sure the information on the form is accurate. If you paid full price for your health plan and don’t qualify for premium tax credits, you don’t need to do anything. If you paid full price and want to check if you qualify for premium tax credits, use Health Coverage Tax Tool.
- If you purchased a policy outside the Marketplace. You may get Form 1095-B, Health Coverage, which you can use to fill out your Form 1040.
Do I Need to Pay a Tax Penalty if I Don’t Have Health Insurance?
In the past, the Affordable Care Act (ACA) mandated that everyone should have minimum health insurance coverage. However, since 2019, the IRS is no longer imposing a tax penalty for not enrolling in a health insurance plan.
The bottom line is that your health insurance can be good or bad for your taxes, especially if you purchased your policy through the Marketplace. We recommend that you visit HealthCare.gov to learn more about including your health coverage when filing your income tax return.
If you are in need of professional assistance to find the best insurance policy, contact TSL Insurance Group today. TSL Insurance Group is an independent insurance agency in Baton Rouge, Lafayette, Abbeville, Franklin, and Lutcher, LA, that can help you find the right insurance that fits an individual’s needs or the needs of a family. Our agents are dedicated to serving clients with the best insurance options. Schedule a free consultation with one of our advisors today!