Affordable Care Act
Health Insurance Tax Tips for the 2016 Tax Year
Published on March 15, 2017
The Affordable Care Act (ACA or Obamacare) has an uncertain future that raises questions for many people thinking about how their health insurance coverage will affect their income taxes for 2016.
eHealth has provided healthcare-related tax tips to help people who buy their own health insurance understand their options.
Be aware that these tax tips are not meant to serve as personal tax advice. eHealth encourages people to consult a certified public accountant or a tax professional when preparing your state and federal income taxes.
6 Health Insurance Tax Tips for the 2016 Tax Year
1. Fund your Health Savings Account (HSA) for 2016 – HSAs are tax-advantaged savings accounts you can use with an HSA-eligible health insurance plans. Any contributions, qualified distributions, and earnings on the money you have in an HSA are all tax-exempt.
HSAs allow you to deposit part of your income into a savings account on a pre-tax or tax-deductible basis. You can then use those funds when paying for qualified medical expenses. Any money you don’t spend grows in value from year to year. If you’ve got an HSA, you can deduct your contributions up to the limits allowed by the federal government.
You can count contributions made for 2016 as well as contributions made before April 15, 2017 toward your 2016 federal taxes. Any HSA contributions for the 2016 tax year are limited to $3,350 for individuals and $6,750 for families. If you’re age 55 or over, you may qualify to make an additional contribution of $1,000 .
2. Be aware that tax penalties for being uninsured are still in effect, for now – If you didn’t have a major medical health insurance plan for more than two consecutive months in 2016, you may be subject to a tax penalty (“the shared responsibility payment”) when you file your federal taxes. In 2016, the tax penalty is the greater of 2.5% of your taxable household income or $695 per adult ($347.50 per child). That’s a large increase over 2015.
Be aware that the tax penalty could be retroactively repealed for 2016. The American Health Care Act (AHCA), recently introduced by the Republican leadership in the House of Representatives, would do repeal that tax penalty, which means people that otherwise would have to pay the penalty may be off the hook.
It’s not clear if the AHCA will become law and if it does, its not clear if the provision that would eliminate this mandate makes it into the final form of the bill.
3. Watch out for the 2016 “claw-back penalty” – Did you receive government subsidies (advanced premium tax credits) for your 2016 health insurance coverage?
If so, be aware that the tax credit is dependent on your actual income for 2016.
If you earned more money than you thought you would in 2016, you could be asked to pay back some of your subsidies to the IRS, or have that amount deducted from your tax refund.
But, if you earned less than you thought you would, you could get additional subsidies paid back yo you or have your tax burdens go down.
Ask your tax adviser about last-minute contributions to your HSA. If you did earn more than expected in 2016 and you may be able to avoid the need to repay your health insurance subsidies to the IRS if you make a contribution to your HSA account as late as April 15, 2017. Doing so could could potentially reduce your taxable income for the year and help you dodge the claw-back penalty.
4. Check the mailbox for your 1095 tax form – You may recall from last year that a 1095 form will hit your mailbox in a one of these variations: 1095-A; 1095-B; or 1095-C. The form you get depends on whether you got your coverage – through an employer or purchased on your own. This form proves you have health insurance that met the Affordable Care Act’s standards and how much federal aid (if any) you have got in 2016.
This form will help you file your 2016 federal tax return correctly.
5. Look for medical expense deductions – You can itemize and deduct qualifying medical expenses from your 2016 taxes if they exceed 10% of your adjusted gross income.
IRS Publication 502 has more information about what a qualifying medical expense is. These expenses may include monthly premiums you pay for some kinds of coverage (including some Medicare premiums), copayments, deductibles, dental expenses, and costs for some services not covered by your insurance plan.
You may even be able to deduct mileage accrued while driving to and from regular medical appointments.
6. See if you can deduct Medicare premiums and medical home improvements – If you’re a retired senior, you may have an easier time meeting the 10% adjusted gross income threshold to deduct itemized medical expenses on your federal return.
In addition to your out-of-pocket expenses for medical, dental or vision care, you may also be able to include capital expenses for the installation of home medical equipment or improvements to your property for wheel-chair access.
People on Medicare should be aware that premiums taken from your Social Security check to pay for Medicare Part B may qualify as a tax deduction, as well as premiums you paid for Medicare Part D (prescription drug coverage) or a Medicare Supplemental plan.