The short answer is possibly. There are various provisions within the Affordable Care Act (described below) to help you determine if your situation will result in a tax increase or decrease. The goal of the ACA is to provide affordable health care for every American who qualifies. In general, this means that the ACA should not impact your taxes negatively if you qualify for ACA incentives.
Advanced Premium Tax Credit
Unlike other tax credits, the tax credit associated with the ACA can actually be paid in advance. The Advanced Premium Tax Credit (APTA) can be sent directly to your health insurance provider as a prepayment towards your monthly premiums. If you purchased health insurance through the Health Insurance Marketplace, you may qualify for this tax credit. To see if you are eligible, you must provide information about the size of your family and an estimate of your annual household income. This information is also used to calculate the amount of your premium tax credit.
The tax implications come at the end of the year when you need to file your tax return. You must consider the reconciliation of the tax credit against your actual household income. If your annual income is less than your estimate, you may receive a further tax refund – whereas if your income is substantially more than your estimate, it may reduce your refund amount or create a tax liability. Any changes to your family could also increase or decrease the tax credit (such as giving birth to a child, adopting a child, or having your child move out of the home and filing his/her own tax return).
Penalties and Exemptions
The ACA also levies penalties on individuals who do not have health insurance. Although participating in the ACA is voluntary, if you choose to opt out without having sufficient health insurance, you could be liable for a penalty (called the “individual mandate penalty”). The penalty is based on the number of people in your home who are not covered, or on a percentage of your household income, whichever is greater. The minimum penalty amount changes each year – it is $95 per person for 2014, $325 per person for 2015, and $695 per person for 2016.
Fortunately, there are a number of exemptions that may help you avoid these penalties. There are two categories of exemptions: marketplace exemptions and tax return exemptions. Marketplace exemptions include exemptions for religious reasons, financial hardships (such as homelessness, bankruptcy, and foreclosure), medical reasons, and personal reasons (such as caring for an ailing relative, being a victim of domestic violence, or dealing with the death of a family member). Tax return exemptions include exemptions for households with income below the filing threshold, individuals with a small gap in coverage (3 months or less), incarcerated individuals, and U.S. citizens who live abroad.
The ACA is meant to help provide affordable health care to all American citizens, but it can increase your tax liability – especially if your estimated household income turns out to be substantially lower than your actual income.