As tax time nears, it’s important to understand how changes in health care may affect what you owe for 2017 and 2018. This time of year typically creates a lot of consumer confusion, and getting all the facts straight can be tricky. With the repeal of the Affordable Care Act’s individual mandate recently in the news, this topic is certain to cause particular issues this year.
Aside from the individual mandate, other health care expenses can also affect your tax return, including Health Savings Accounts and high-cost medical expenses. If you’re trying to beat the tax time rush, here are a few tips on what you should know about these items.
You Must Report if you had Health Insurance
Though Republicans did repeal the individual mandate through the Tax Cuts and Jobs Act in December, the repeal is not effective yet. Some consumers might hear that the mandate has been repealed and assume that the tax penalty for lacking health insurance is gone. However, that is not the case.
Consumers are still required to report whether they had health insurance for both the 2017 and 2018 tax years. If you do not have qualified coverage in 2017 or 2018, you may be liable for the tax penalty. The IRS is very clear about this for the upcoming 2017 filing season — it will reject returns that do not report full-year coverage, claim a coverage exception or report the tax penalty.
Do you have coverage through your workplace? If your workplace has more than 50 full-time employees, your employer is required to report to the IRS that they complied with the ACA’s employer mandate and offered health insurance. They are also required to send you a tax form, called the 1095-C, to confirm you had coverage in 2017.
However, the deadline for your employer to send you this form has been extended to March 2. This means some consumers will not have the form by the time they file their return, but you do not need the information on the 1095-C to confirm your coverage. In other words, you do not need to wait to receive the 1095-C to file your tax return.
Review your Health Savings Account
Do you have an HSA? These savings accounts allow consumers to save money tax-free to spend on qualified medical expenses. Individual consumers can contribute up to $3,400 and families can contribute $6,750 in 2017.
If you haven’t met your contribution limit, you can still add funds to your account for 2017. Consumers can contribute for the 2017 tax year all the way until April 15, 2018. If you’re expecting medical expenses this year, this can be a good way to prepare.
In order to file your taxes with an HSA, you will need to prepare Form 8889 to report your contributions and withdrawals. You will also receive Form 1099-SA from your HSA administrator. This form will list your withdrawals to cross-verify that your HSA expenses were actually qualified medical expenses.
Medical Expense Deduction Expanded for Two Years
Did you have a major medical event in 2017? Consumers with high medical bills can deduct these expenses from their taxable income. The new tax bill expands the threshold for this deduction for 2017 and 2018. If your out-of-pocket medical bills exceeded 7.5% of your adjusted gross income, you can claim this deduction.
Beginning in 2019, the threshold will revert to its current level of 10% of the consumer’s AGI. However, many consumers are not eligible for this deduction. Health insurance premiums are often consumers’ biggest healthcare expense, and these costs often do not count toward this deduction. In the U.S., parts of our health care system are directly linked to tax season. Be sure to verify that you are taking advantage of any health care tax benefits that you are eligible for in 2017.