 Income tax 2023-2024, affordable care act, what you need to know, get ready and some coffee because we're setting our refund to the max with income tax preparation 2023-2024. Most of this information can be found in the form 1040 tax year 2023 instructions which you can find at the IRS website, irs.gov, irs.gov. Now I want to give a quick recap of at least my interpretation of some of the events that happen related to the Affordable Care Act because telling a story can give us some better understanding of how the current implications should be implemented or how they came about and how we can act on the tax preparation at this point in time. So you may or may not recall that in the Obama administration there was a big push related to health care. They wanted to solve the health care problems, some of the problems being health care is very expensive. They wanted access to the health care and so on. Now some of the solutions proposed included, for example, this first a word from our sponsor. Yeah, actually we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us. But that's okay, whatever, because our merchandise is better than their stupid stuff anyways. Like this CPA thinking cap for example, CPA thinking CAP, you see what we did with the letters. And this CPA thinking cap is not just for CPAs either. Anyone can and should have at least one possibly multiple CPA thinking caps. Why? Because based on our scientific survey of five people, all of whom directly profit from the sale of these CPA thinking caps, wearing this CPA thinking cap without a doubt according to the survey, increases accounting productivity tenfold. Yeah, at least. Apparently the hat actually channels like accounting energy from the quantum field ether directly into your head, allowing you to navigate spreadsheets faster. It's kind of like how in like the matrix when Neo learns kung fu, or at least that's what the scientific survey is saying. So get one because the scientific survey participants could really use some extra cash. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Issue of a free rider problem from an economic standpoint. This is a typical kind of economic standpoint situation or argument in that there are many people that don't have health insurance that still get health care, for example, going to the emergency room when they need it, when they can't pay for the health care or have coverage for it, which causes the insurance for people that do pay for the health care to go up. That's one issue that came up. There's another issue as to whether it would be more beneficial to have one large basically health care system or to have more competing health insurance kind of system, a more market based approach, which I won't go into in a lot of detail here. Now with this free rider problem, it's kind of similar to auto insurance. So you have a similar situation where they basically said that you have to have insurance in many areas if you're going to get a driver's license and in doing so, since everybody is insured, then that will hopefully lower the cost of insurance because you're not going to get into an accident or less likely to get into an accident with someone that can't cover the damage if they caused the accident. However, in the car insurance, the issue was that you had to get insurance in order to get a driver's license, whereas on the federal level with the health insurance, they basically wanted to require health insurance just as a condition in and of itself, not to get anything else. And then if you don't, how are they going to enforce that? They would have to hit you with penalties and whatnot on taxes. And so there was a question as to whether that was a constitutional thing to do to force someone to buy something and then hit them with penalties or taxes on the tax return if they don't as a consequence to try to enforce that. And so there was back and forth on this whole type of thing. And what we ended up basically having is a healthcare marketplace kind of system where some people could basically get access to a credit for health insurance. And that's obviously the idea was to help more people to be able to afford in essence the health insurance. And they came up basically with this concept that they were going to try to pre-calculate the credit and then apply it when you're paying for the health insurance and then you'll kind of shore up whether or not that credit was actually correct at the end of the year, which is kind of complex. But they've been applying this concept more and more. So that's a little bit of the background. So I'll get into it in a little bit more detail here as we go. Okay, requirement to reconcile advanced payments of the premium tax credit. All right. So the premium tax credit helps pay premiums for health insurance purchase from the marketplace. So typically if you're in a low income situation, you might basically buy insurance through the marketplace. And if you buy insurance through the marketplace, then you might be eligible for a tax credit. Now, the tax credit because they wanted to help people purchase the insurance upfront, then they want to basically pre-calculate the credit. So in other words, usually the way the credit works, if you're talking about tax year 2023, you would have to go through tax year 2023. And then when you file the tax return on April 15th or whatever of 2024, you calculate the actual credit at that point in time based on the income and thresholds and whatnot of the tax year 2023. But we would like to basically pre-calculate what the credit dollar amount would be so that we can pay for the insurance with the credit instead of waiting until the end of the year. So you can see that becomes kind of complex now, because now you have to basically kind of figure out what you think the credit would be and then lower your health insurance instead of getting the money in the form of a credit. They're going to take the money and pay on your behalf for the health insurance. So it's kind of like they gave you the money and then you paid for it. You paid the health insurance with that money. But of course, instead of trusting you with the money, they're going to just pay the health insurance and lower the amount of the premium when you pay for the health insurance. Now then what happens then at the end of the year, you're going to have to see how much of a credit you got in the form of prepayments of the health insurance versus the credits that you actually should have gotten now that you know what the tax return is and see whether or not you owe more money based on that credit that you took in essence in advance. Okay, eligible individuals may have advanced payments of premium tax credit made on their behalf directly to the insurance company. So again, a lot of people when they do this, they kind of think, look at this, my insurance is really cheap, but the idea is not that your insurance is really cheap. The idea is the price of the insurance is what it is and then you've got a credit which means it would be like they gave you the money and then you use that money to pay down part of the insurance premium is what is really happening. And so at the end of the year, then you have to determine whether or not the amount of credit you got is valid based on your income levels. So if you are your family member enrolled in a health insurance through the marketplace and advanced payments of the premium tax credit were made on your insurance company to reduce your monthly premium payment, you must attach form 8962 to your return to reconcile, compare the advanced payment with your premium tax credit. So if you got this advanced payment, then they're going to have to give you a form to tell you in essence what the advanced payment was. So then in the tax return, you're going to have to basically compare this is the advanced payment that I got basically a credit in essence. You got cash but not really cash. You got the payment of your insurance by this credit in advance. And then you're going to have to compare that to what you should have got in terms of the credit. And if you overpaid the credit, you would think then possibly that can have a negative impact on your taxes having a larger tax liability and if you underpaid, then you might get more benefit in terms of possibly a refund or reduction of the tax liability. So the marketplace is required to send form 1095A. So as a tax preparer, if you're doing taxes and you see that 1095A, you go oh no, it's a marketplace situation. I'm going to have to deal with this comparing the credits thing. So by January 31, 2024, listing the advanced payment and the other information you need to complete form 8962. So you will need form 1095A from the marketplace, complete form 8962 to claim the credit and to reconcile your advanced credit payments and then include form 8962 with your form 1040, 1040SR or form 1040NR. So health insurance coverage reporting. So if you or someone in your family was an employee in 2023, the employer may be required to send you form 1095C, part two of form 1095C shows whether your employer offered you health insurance coverage and if so, information about the offer. So you should receive form 1095C by early March 2024. So you can kind of see the remnants here. So obviously the credit is to help people kind of get access to the health insurance and so on and help people that possibly can't afford the health insurance to pay for the insurance. You can see kind of the remnants of the idea that if you didn't buy health insurance, then we're going to hit you with the penalties. And that's part of the plan that they had in place that was heavily questioned as to the legitimacy of that. So you could see they wanted to have these forms to have proof that you had health insurance and if you didn't possibly then being subject to penalties, which some of the teeth got taken out of that. Meaning, you know, but also note that on the state level, you could possibly depending on the state you're in have a similar type of situations in terms of the state trying to require you to have health insurance. So you want to be aware of that on the state level as well. So this information may be relevant if you purchase health insurance covered for 2023 through the health insurance marketplace and wish to claim the premium tax credit on schedule three line nine. So however, you don't need to wait to receive this form to file your tax return. You may rely on other information received from your employer. If you don't wish to claim the premium tax credit for 2023, you don't need the information in part two of form 1095C for more information on who is eligible for the premium tax credit. You can see the instructions for form 8962. So clearly the premium tax credit is generally designed for lower income individuals as a way to try to get more people to be able to afford the health insurance. The idea being that if more people can get on health insurance, it might actually lower health insurance. And obviously it would be a benefit to get people covered by the health insurance. So generally the idea you would think would be that as your income levels rise, then it's going to be less likely that you're going to have a phase out in terms of whether you'll be eligible for the credit or not. So if you're working with lower income individuals, then you would think you'd be more likely to be eligible for the credit higher individuals, more likely not to be eligible for the credit would be the general thought process, but you also want to keep the state implications involved or in mind as well in terms of whether or not you need documentation to prove that you had coverage throughout the entire year in the event that the state tries to take some kind of action such as taxing you or penalizing you or whatever they want to call it, hitting you with something if you don't have the right kind of evidence of health insurance.