Amending Tax Return Errors Related to Health Insurance Coverage

The Affordable Care Act (ACA) plays a crucial role in the American healthcare system, and it’s important to understand your insurance coverage when filing your taxes. Mistakes in reporting health insurance information on your tax return can lead to errors and potential complications. In this blog, we’ll delve into common errors related to ACA health insurance and provide guidance on how to amend your tax return if necessary.

Understanding the ACA’s Impact on Tax Returns

The ACA introduced the individual mandate, which required most Americans to have health insurance coverage. Failure to maintain coverage could result in a penalty known as the individual shared responsibility payment (ISR). The amount of the ISR depends on factors such as your income and the length of time you were uninsured.

When filing your taxes, you must accurately report your health insurance coverage to avoid penalties. The information you provide on your tax return affects your eligibility for premium tax credits and other benefits.

Common ACA-Related Tax Return Errors

Two common errors related to ACA health insurance on tax returns are:

1. Incorrectly Reporting Eligibility Period

If you have an HDHP, you are only eligible for the HSA deduction if you have no other disqualifying health coverage during the year. In the case of the person who filed using FreeTaxUSA, they started coverage with an HDHP in August 2023 but mistakenly indicated they were eligible for the entire year. This error may result in an incorrect calculation of the HSA deduction and potential penalties.

2. Reporting Out-of-State Health Insurance

When filing your state tax return, it’s important to report your health insurance coverage based on the state where you reside. In the case of the person who moved from PA to CA in June 2023, they incorrectly reported having health insurance for the entire year in CA, when they should have indicated they had coverage for part of the year since their coverage prior to June was through their PA employer. This error may result in an incorrect calculation of the ISR and potential penalties.

Amending Your Tax Return

If you discover an error on your tax return related to ACA health insurance, it’s important to amend your return as soon as possible. You can do this by filing an amended return using Form 1040-X. The IRS provides detailed instructions on how to amend your return on their website.

When amending your return, you must correct the incorrect information and provide the correct information for the error(s) you are amending. You may also need to provide additional documentation to support your correction.

It’s important to note that the IRS may charge a penalty if you file an amended return after a certain period of time. If you are unsure about how to amend your tax return, it’s advisable to consult with a tax professional.

By understanding the ACA’s impact on tax returns and being aware of common errors, you can avoid potential penalties and ensure an accurate tax filing. If you discover an error, don’t hesitate to amend your return promptly to avoid further complications.