Although the 2016 filing year will be the third year for which tax return preparers need to evaluate how their individual clients have fulfilled the requirements of the Patient Protection and Affordable Care Act (PPACA) of 2010, P.L. 111-148, individual shared-responsibility provision, it will be the first year in which preparers will be able to benefit from consistent practices related to the Form 1095 series. In prior years, certain forms were optional or had delayed issuance dates.
The PPACA individual shared-responsibility provision requires all individuals to do one of the following:
- Maintain minimum essential health coverage for each month of the year;
- Qualify for an exemption; or
- Pay a shared-responsibility payment with the filing of Form 1040, U.S. Individual Income Tax Return.
Forms 1095-A, Health Insurance Marketplace Statement; 1095-B, Health Coverage; and 1095-C, Employer-Provided Health Insurance Offer and Coverage, are information returns not included with Form 1040. Understanding them will aid preparers in preparing their clients' individual income tax returns and fulfilling their professional due-diligence responsibilities. Below is a brief rundown of each form. See the exhibit below for a guide to the forms related to PPACA health insurance coverage requirements.
Form 1095-A: Individuals purchasing health insurance through the health insurance marketplace (an exchange) will receive this form. The deadline for issuing Form 1095-A to recipients is Jan. 31.
Form 1095-B: Individuals acquiring health insurance directly from an insurance company, from a company-sponsored health insurance provider, or from small, self-insured employers (fewer than 50 full-time-equivalent employees (FTEs)) should receive this form. Form 1095-B was optional in 2014, and in 2015 the IRS extended the date by which the form must be furnished to recipients to March 31, 2016. For 2016, insurers must issue Form 1095-B by Jan. 31, 2017.
Form 1095-C: This form is issued by employers, including government employers, with 50 or more FTEs. Form 1095-C identifies whether insurance was offered to the employee and the actual coverage provided. Individual taxpayers who purchased health insurance through the marketplace may use information from Form 1095-C to determine eligibility for a premium tax credit. This form was optional in 2014, and in 2015 employers had until March 31, 2016, to furnish the form to recipients. Beginning in 2016, the deadline for issuing Form 1095-C is Jan. 31 of the subsequent calendar year.
A client could have multiple forms if he or she had multiple employers during the year or had coverage through the marketplace for part of the year. A preparer should read each Form 1095 closely to ensure that each member of the household (taxpayer, spouse, and claimed dependents) had coverage for each month of the tax year.
Although it is a best practice for a tax preparer to obtain a client's Form(s) 1095, it is not required. If a client does not provide Form 1095, the preparer should make other inquiries to ascertain the client's coverage. The AICPA Statement on Standards for Tax Services (SSTS) No. 3, Certain Procedural Aspects of Preparing Returns, says that a preparer may rely, without verification, on information provided by a client. However, if the information appears incomplete, incorrect, or inconsistent, it is incumbent upon the preparer to make further inquiries.
Example 1: A client brings in his 2016 documents and meets with the tax preparer to discuss his return. The preparer notices there is not a Form 1095 included and asks the client whether he received one. The client says he recalls receiving a Form 1095-B but cannot find it. The client states he and his family had health coverage for the entire year.
May the preparer rely on the client's statement to mark the full-year coverage box on Form 1040? Although the preparer may rely on the client's answers, a best practice would be to ask him or her to contact the insurance provider or the employer and ask for a copy of Form 1095-B.
Example 2:Assume the same facts as Example 1, except now the tax preparer knows the client was unemployed for part of the year.
May the preparer rely on the client's statement? It would be appropriate for the preparer to ask follow-up questions to understand the health insurance coverage the client and his family had during the time he was unemployed. For a more detailed discussion of PPACA requirements, see Nellen, "What Individuals Need to Know About the Affordable Care Act for 2016," Tax Insider, Feb. 18, 2016.
Also consider some of the following resources:
- A chart of programs that qualify as minimum essential coverage is available on the IRS's website at irs.gov/aca.
- On the IRS's homepage at irs.gov, under the "Tools" tab, click on "More ..." to find the Interactive Tax Assistant tool.
- IRS Publication 974, Premium Tax Credit (PTC).
- IRS Publication 5187, Affordable Care Act: What You and Your Family Need to Know.
- Form 8962, Premium Tax Credit (PTC), and its instructions.
- Form 8965, Health Coverage Exemptions, and its instructions.
- The AICPA's Affordable Care Act—Individual Mandate: Supplement to 2014 Individual Income Tax Return Checklist, which is available at www.aicpa.org.
Contributors
Thomas Purcell is a professor of accounting and the chair of the Department of Accounting at Creighton University in Omaha, Neb. Mr. Purcell is also chair of the AICPA Tax Practice Responsibilities Committee. Heidi Ridgeway is a director of Tax Practice Policy & Quality at Grant Thornton LLP in Chicago. Kristy Rempalski is a partner with the National Tax Office at Crowe Horwath LLP in Grand Rapids, Mich. Ms. Ridgeway and Ms. Rempalski are members of the AICPA’s Tax Practice Responsibilities Committee.
