A few months ago, the Hennepin Lawyer published an excellent article by two Minneapolis attorneys about the effects of the Affordable Care Act (Obamacare) on divorcing spouses and never married parents.
The crux of the issue (or at least one issue) lies in who (and how) divorced and never married parents will share dependency exemptions after the implementation of ACA’s individual mandate. Currently, the right to claim a child as a dependency exemption is typically addressed as part of a child support order–and most often the exemptions are split or alternated between parents. (IRS Publication 504 provides an ever-helpful resource for explaining the IRS’s perspective on many of these issues.)
But beginning in 2014, the parent that claims a child as a dependency exemption will also be responsible for “ensuring” that the child has health insurance coverage that complies with the minimum requirements of the ACA. See 26 USCA §5000A and 26 USCA § 152(e). Unfortunately, the as-of-yet-unanswered question is what it means to “ensure” that a child has coverage. Must the parent claiming the exemption actually maintain (and pay for) the coverage themselves? Is it enough that there is a court order in place that requires the other parent to maintain coverage? If so, what verification must the parent claiming the exemption provide? Thus far, the IRS website offers little guidance, simply stating that:
Information will be made available later about how the income tax return will take account of coverage and exemptions. Insurers will be required to provide everyone that they cover each year with information that will help them demonstrate they had coverage beginning with the 2015 tax year.
The concern for parents who split or alternate these exemptions is that one parent may be legally entitled to claim a child as a dependency exemption (under a divorce decree or child support order), but may incur a penalty for doing so because the other parent provides insurance coverage. Thankfully, penalties for the 2014 tax year will be relatively modest (the greater of $47.50/ child or 1% of family income in the first year). But with penalties gradually increasing, how the ACA applies to families in this situation must be addressed sooner rather than later.