Understanding Your Health Coverage – Forms 1095-A vs. 1095-B vs. 1095-C
IRS tax forms under the 1095 category are used to show proof of health insurance coverage. Residents of the United States are required to carry health insurance and many taxpayers qualify for a tax credit, which helps to offset the mandatory coverage.
Your provider, not the IRS, should provide you with one of the three types of 1095 forms, which are:
Every individual must carry the minimum amount of coverage, and that coverage must have been in place for at least ten months. You cannot go uninsured for more than 60 consecutive days.
Some individuals are exempted from the Affordable Care Act such as taxpayers whose adjusted gross income (AGI) is lower than the minimum filing requirements. Other payers may be exempt, but they will have to submit supporting documentation or an application when filing their returns. Some situations that may entitle a resident to be exempt from the mandatory insurance are:
- Foreclosure, eviction, or homelessness. If you are homeless, you only need to fill out an application.
- A natural or man-made disaster that caused significant or catastrophic damage to your residence may be a qualifying event. The police, fire department, or another official agency must provide proof of disaster.
- Death of a close relation may exempt some individuals. Acceptable forms of documentation are death certificates, a coroner’s report, or receipts from a funeral home.
- Entire families might qualify for exemption if they incurred bills and extra expenses to treat and care for aging, disabled, or sick family members. Pharmacy receipts, hospital bills, and home healthcare services are some types of documentation that can be used to show proof of hardship.
If you did not have a qualifying hardship and choose not to acquire the minimum healthcare coverage, you would be fined a penalty. The government’s health website, Health Care, states the fine will be on every month you are not covered, and the amount is figured two separate ways.
Moreover, you will be responsible for paying the higher of the two fees. One fine is calculated off a percentage of income, and the other fine is formatted off a per person calculation.
What is Form 1095-A for?
The IRS form 1095-a is documentation that a taxpayer had the required minimum healthcare coverage, and the insurance was purchased from an exchange. A healthcare exchange is commonly referred to as a Marketplace. It is where consumers can compare various companies.
Because of this, the 1095-a is also known as the Health Insurance Marketplace Statement. You will receive a copy, and the IRS will receive one too. The document states:
- Who was covered
- The dates of coverage
- The amount of coverage
- Advance tax credit payments
- If the advanced tax credit payments paid for the insurance
Taxpayers who purchase insurance via the exchange or marketplace qualify for the premium tax credit. The credit is used to offset the cost of coverage. Only people who purchase in the Marketplace are eligible for this credit.
Form 1095-A instructions
Individuals or households that received insurance through the marketplace are typically eligible for the premium tax credit. There are two options:
- When you are purchasing the insurance, you can decide if you want to buy the plan now and receive a tax reduction at tax time. In this case, when you file your return, the amount of the credit will be taken off any taxes owed.
- The second option is to opt to use the credit to pay some of the insurance. If you choose this option, the federal government will send your insurance provider payments on your behalf. With this choice, there are three possible tax scenarios to keep in mind.
- The credit was enough to pay for all of the coverage.
- The credit was enough to pay for the coverage, and there is some left over. The remainder will be applied to any taxes you may owe.
- If the payment the government paid to your healthcare provider was more than your tax credit turned out to be. You will have to repay the difference, and the amount you owe will be calculated into your taxes, and you may end up owing money to the IRS.
There are several ways to avoid having an IRS tax bill. The IRS recommends reporting financial and household changes to the Marketplace. This will allow them to adjust your credit. Some situations in which to notify them of are:
- Any decrease or increase in income
- Death, birth, marriage, or a divorce
- Obtaining health care from an employer
- If you move
What to know about the Covered California form 1095-A
If you participate in the Covered California plan, you will receive a 1095-a form. The document is mailed to the address on file starting at the end of January. If you did not receive it, you can go online and log in to your Covered California account. Your 1095-a is located under the document tab.
If you cannot get online or need help, call the toll-free Covered California hotline or your insurance agent.
You must have this form for two reasons. One, to show the government you complied with the mandatory insurance act, so you will not be penalized or fined. Second, to claim any credit that may be left over or pay any tax owed.
What is the Form 1095-B for?
The IRS form 1095-b is a document that proves a taxpayer had the required minimum healthcare coverage, but usually, it was not purchased through the exchange or Marketplace. Businesses with less than 50 employees may use this form. If they do, the employer should mail out a 1095-b to each employee.
Some other forms of healthcare insurances that can be represented on the 1095-b are:
- Coverage provided to a retiree from past employers
- COBRA benefits for terminated or laid-off employees
- Policies in place before the Affordable Care Act
Like the 1095-a, the 1095-b states the insured parties, policy, and dates covered, and the form identifies the employee and the employer.
Instructions to file with a 1095-B
Unlike the 1095-a, which has to be mailed out by the end of January, companies that mail the 1095-b have until the beginning of March to mail the document. Because of this timeframe, per the IRS, taxpayers do not need to wait for the 1095-b to file. They should file their annual return on time as normal.
What is a form 1095-C?
Businesses with 50 or more employees will provide their insured employees with a 1095-c. These larger businesses are referred to as applicable large employers (ALE). They must employ at least 50 people, and those individuals must work more than 30 hours per week. The 1095-c gives the employee documentation that shows they were insured for at least the minimum requirements.
The information on the 1095-b and 1095-c are similar. The employer and employee are named, a description of the coverage, coverage dates, and any dependents insured on the plan.
Form 1095-C and codes you need to know
A 1095-c is broken down into 24 lines, and some of the boxes will have a code made up of a number and a letter. The codes represent explanations to the corresponding questions. The 24 lines are separated into three parts, which are personal information, coverage details, and dependents.
Part one states personal information about the employee, such as name, address, and social security number. The employer’s information includes employer or business name, address, and their tax identification number.
Part two is broken down into three lines: 14, 15, and 16. Down each line are 13 spaces one for each month of the year, and one box representing the total of all 12 months. Information needs to be reported on a month-by-month case to assure the IRS that you were protected most of the year.
Line 14 notes what coverage was offered and is one of the most detailed portions.
The possible codes and their meanings are:
- 1A The employer made an affordable offer, based on the poverty guidelines established by the government. The offer was made to you and all dependents, including your spouse.
- 1B Insurance was offered to the employee only.
- 1C Insurance was offered to the employee and dependents.
- 1D Insurance was offered to the employee and the employee’s spouse.
- 1E Insurance was offered to the employee, spouse, and all dependents.
- 1F Insurance that did not provide the minimum requires was offered to the employee, spouse, and dependents.
- 1G The employee did not work full-time but has healthcare coverage.
- 1H The employer did not present a qualifying offer or made no offer at all.
- 1J Conditional insurance was offered to the spouse, and full coverage was offered to the employee.
- 1K Conditional insurance was offered to the spouse, and full coverage was offered to the employee and all dependents.
Line 15 breaks down payments required by the employee. This line again is broken down into 12 months and one box for the total of all the months. Each month’s payment maybe zeroes if the employer covered everything, or there may be some payment if the employee opted to buy additional coverage.
Line 16 tells the IRS why the business did or did not offer insurance. The codes and their meanings are:
- 2A The employee did not work all month
- 2B The employee did not work full-time
- 2C The employee was covered for the month
- 2D Per the terms of the Affordable Care Act, the employee is not eligible for insurance due to a waiting period
- 2E The employee was insured with a Union
- 2F The employee was offered insurance at a cost based on your W-2 but failed to enroll
- 2G The employee was offered insurance at a cost based on poverty standards set by the federal government but failed to enroll
- 2H The employee was offered insurance at a cost based on a pay scale but failed to enroll
Part three covers self-employed or self-insured people. The self-insured person checks off all the months they were covered, and note any dependents that were covered also.
Instructions to file with a 1095-C
The 1095-c is not typically mailed out until the beginning of March. You will need to keep it for proof of insurance, but you do not send it to the IRS with your return.
The Marketplace Assigned Policy Number
Line 2 on the 1095-a is the healthcare policy number, but this number was assigned to it by the Marketplace. This number can be very long, but you should only put in the last 15 digits of the policy number assigned by the Marketplace as described in the IRS Instructions for the Form 1095-a noted under part 1, line 2.
What to do when the IRS requests Form 8962 and your 1095-A
The IRS will send a taxpayer a letter if the tax credit given to pay healthcare insurance is not reflected on the taxpayer’s return. If you receive this type of letter, it must be addressed, or you will not qualify for future credits or cost-saving plans. You will be asked to supply three documents:
- Form 8962
- A copy of your 1095-A
- The second page of your tax return but with the newly calculated figures and an original signature.
Form 8962 is a two-page document that allows filers to figure out their premium tax credit. It is completed in five steps.
Breaking Down Form 8962
Part one is where income and contributions are figured. You will need your 1040 or 1040a for reference.
Transfer over your exemptions. You will need to input your modified adjusted gross income (MAGI) not your adjusted gross income (AGI). The MAGI is the AGI plus the addition of such things as tax-free interest you earned that year or any foreign earned income. Often a taxpayer’s AGI is the same as the MAGI. You will also need to calculate your household income in relation to the federal poverty level. To do this, use the table provided in the IRS form 8962 instruction booklet. Then you will be able to figure the monthly and annual contribution.
Part two is boxed off into an annual calculation and monthly calculations. Here, you will go month-by-month or annually, Write in how much the enrollment premium was, and the SLCSP premium, which can be found on your 1095-a. Then write in your contribution, include received premium assistance, any tax credit, or advance payments from the premium tax credit.
Part three calculations use part two’s figures. This will determine how much of the premium tax credit you qualified for, and you can compare it against the amount the government paid on your behalf. If you discover you owe money, write the number from line 29 of the form 8962 onto your 1040. The newly calculated amount should go on line 26 of your 1040.
Part four will only apply to divorced couples who need to allocate the household funds. This allows the calculations to be split between two households.
To finish, enter in the new figures on line 26 of your 1040 and recalculate. Sign the newly created second page with the correct values. If you find you are still receiving a refund or do not owe taxes, send the 8962, the copy of your 1095-a, and the revised second page.
If you now owe taxes and you cannot pay them, still mail in the package, but contact the IRS to make a payment plan.
What are the differences between form 1095-A vs. 1095-B and form 1095-C?
In summary, all 1095 forms show proof of health coverage, which is required for most U.S. citizens. The 1095-a provides evidence that a taxpayer purchased insurance through the Marketplace or an exchange. The 1095-b proves insurance was purchased either by a small business employer or an individual through a health insurance company. Large employers, who have over 50 employees, should distribute the 1095-c.