Health insurance is one of the most essential forms of insurance any of us can buy. And while you’re likely already familiar with its importance when it comes to covering the cost of medical treatments, did you know it can also impact your taxes — particularly the way you file? Whether you obtain a policy through the Affordable Care Act’s Marketplace or your employer provides it for you, there are several different ways health insurance affects tax reporting.
Each time a new year rolls around, different entities begin sending out tax forms related to health insurance that you’ll need when you prepare to file for the previous calendar year. One of these is called Form 1095-B, and there are some key situations that determine whether or not you receive this document. If you get a 1095-B form, you’ll need some of the information on it to file your taxes — and the IRS may use the form to determine whether you should receive a tax credit based on health insurance. Here’s what you need to know if you find yourself with a 1095-B form in hand when tax time approaches.
Form 1095-B is a federal income tax document that involves health insurance coverage. A health insurance provider, such as Blue Cross Blue Shield or United Healthcare, issues this form to members of its health plans. You don’t have to worry about filling anything out on it, though. The establishment responsible for the form — in most cases, your health insurance company — completes it on your behalf and sends it to the IRS. Your only responsibility is to review the form and use the information on it when filing your taxes, if necessary. If you work for a company that employs fewer than 50 people, your employer will also fill out mail you a copy of this form.
Form 1095-B determines whether you and your spouse and any dependents that you’ll be including on your tax return have minimum essential coverage. (This is the lowest level of health insurance benefits your policy must provide to you based on limits set in the Affordable Care Act.) One of the primary reasons you might need the information on this form is because, sometimes, your health insurance details can affect your eligibility to receive the Premium Tax Credit. This credit is meant to cover some of the costs of your health insurance premium.
Who Receives Form 1095-B?
A variety of taxpayers receive Form 1095-B. This form applies to almost anyone who receives minimum essential coverage via their health insurance plan. According to the IRS, this form is sent to “individuals who had health coverage for themselves or their family members that is not reported on Form 1095-A or Form 1095-C.” If you applied for insurance directly from the Marketplace, you’ll receive Form 1095-A. If the company where you work has more than 50 employees and you receive health insurance benefits through work, you’ll receive Form 1095-C.
Often, workplaces that have fewer than 50 employees provide insurance through the Marketplace, even if the employees don’t apply for insurance directly through the Marketplace themselves. If this describes your work situation, you’ll receive a 1095-B form.
What Is Minimum Essential Coverage?
The IRS defines minimum essential coverage as “government-sponsored programs, eligible employer-sponsored programs, individual market plans, and other coverage the Department of Health and Human Services designates as minimum essential coverage.” Essentially, this is any health plan that meets coverage standards set forth in the Affordable Care Act.
This definition includes most health insurance options. Any plan that meets minimum essential coverage standards is called a qualified health plan, and this designation is determined by the Health Insurance Marketplace. Qualified plans offer adequate health insurance coverage and meet the Marketplace standards for costs to the individual. COBRA, student health plans, Medicaid, Medicare, CHIP, insurance that individuals purchase and insurance available through employers are examples of plans that qualify.
Plans don’t qualify if they only cover dental, vision or specific medical conditions. Workers’ compensation and medical discount plans don’t qualify, either. Some jobs offer low-cost coverage that only covers specific diagnoses. Some doctors who prefer not to use insurance offer membership programs in which patients pay the doctor a monthly fee to receive discounted medical services throughout the year. These examples don’t meet minimum essential coverage standards.
How to Use Form 1095-B When You’re Filing Taxes
The way people use Form 1095-B to file has evolved as laws around health coverage have changed. When the Affordable Care Act was first signed into law, all taxpayers were required to obtain minimum essential coverage for health insurance. Anyone who didn’t obtain minimum health coverage for all or some months in the tax year was required to pay a penalty at tax time.
This penalty was referred to as an individual shared responsibility payment. The fee was either a percentage of the individual’s income or the average cost of a bronze insurance plan through the Marketplace, whichever was lower. In other words, taxpayers could either choose to obtain affordable health insurance for themselves or pay a penalty at tax time that would contribute towards other citizens receiving affordable insurance. The rules for the amount of the shared responsibility payment were set for the amount to change from year to year. As of 2019, the payment amount has been changed to $0.
Still, Form 1095-B remains in use because it helps people determine whether they’re eligible for the Premium Tax Credit. Eligible taxpayers can receive a tax credit to help them afford health insurance through the Health Insurance Marketplace. You can choose to receive this payment throughout the year as a subsidy automatically paid to your insurance company. Or, you can receive your total credit as a lump sum at tax time. Either way, the credit reduces the cost burden of health insurance for people with lower income levels.
Form 1095-B gives the IRS information to reconcile the amount of Premium Tax Credit you’ve already received. This form, along with your income, is compared with the information you originally provided to the Marketplace when you applied for health insurance. If there are any discrepancies, the IRS may give you an additional credit, or you may need to pay back some of the credit to the IRS.
Differences Between Form 1095-B and Form 1095-C
Form 1095-C is exclusively for health insurance that large employers provide directly to workers. This form also documents the coverage a person has received and helps to determine if the they’ll receive a Premium Tax Credit for the year. Some taxpayers receive both 1095-B and 1095-C forms for a calendar year. If you or your dependents receive coverage both from your large employer and the Marketplace, you can receive both forms.
For example, a single parent may file taxes as a head of household. They may receive Medicaid health coverage, so they receive a 1095-B for themselves. However, the children could be covered by the head of household’s ex-spouse’s insurance from a large employer. So, the taxpayer would also receive a 1095-C Form for their dependents.
If you receive either or both of the forms, you can rest assured that the IRS already has a copy of the form. You simply need to use the information on it to file your taxes. If you want to claim the Premium Tax Credit, you’ll use the information from your 1095 form to fill out Schedule 3, Line 8 on your tax return.