The Affordable Care Act (ACA) has been top of the mind news for the past year, but all we hear about are the broad ends of the spectrum; how great the ACA is or how it is going to ruin our nation. It doesn’t matter what side of the fence you are on with the ACA, it is going to affect us all in one way or another. Most media outlets have focused on large employers and have forgotten that the majority of our country is made up of smaller businesses that are typically self-employed. There are few articles discussing subsidies available in the ACA’s provisions that are meant to help the self-employed of our nation.
The intention of all subsidies in the ACA is to lower the out-of-pocket costs for individuals who do not have employer-based insurance; this also applies to the self-employed. Amounts received as subsidies will not be subject to income tax and can be received in various ways. You may either receive it as premium assistance credits to reduce monthly insurance costs, or you may choose to claim the subsidy as a tax credit on your federal 1040 tax return.
If you elect to receive advance tax credit payments during the year, your total advance payments will be reported to you in a statement. The statement will be very important to your tax preparer, as it will be used to reconcile the actual earned credit to the advanced amounts already received. This means that you may receive additional credit, or be required to pay some of it back. That is why it is crucial you have good record keeping and communication with your tax preparer.
Since the amount of advanced credit is based on your prior year income, it is imperative that any significant changes in the current year income be considered. The worst case scenario is that you would have to return all of the advanced payments when you file your income tax return. Please contact us with your questions about how the ACA will affect you!
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