The Affordable Care Act isn’t just health care reform—it also happens to be a tax law.

That’s because citizens must now report their health insurance coverage as part of their tax returns. And that’s going to mean different things to different people.

Individuals and the Self-Employed

The federal government provides health care subsidies for most Americans in the form of tax credits aimed at helping them pay their health insurance premiums. About 75 percent of people living here in the Midwest can receive a subsidy. An even larger percentage of small business owners and entrepreneurs typically are eligible.

Qualifying is based on the size of your household and this year’s Modified Adjusted Gross Income (MAGI). For most people, that is simply their Adjusted Gross Income—gross income minus business expenses. (Note that it is based on this year’s income, not last year’s.)

These subsidies are issued in the form of tax credits that can be taken in one of three ways.

• You can take it monthly so it reduces the amount of your monthly health insurance premium. You send your part of the premium to the health insurance company, and the federal government sends its part.
• You can take only part of your tax credit monthly. This raises the amount you pay each month and lowers the amount the government pays. You can get the rest back as a tax refund when you file your 2014 taxes in 2015.
• You can pay the full price for your health insurance and, if you qualify, take all of the tax credit as a refund when you file your taxes in 2015.

Whichever approach you take, you will receive a Form 1095-A. It will detail how much subsidy was paid on your behalf by the government. If you received a subsidy, you will use Form 8962 to determine how much subsidy you actually qualified for. You will then compare that with the 1095-A to determine if you owe money or if you get a tax refund.

Beware, though: If you did not apply for health insurance through an exchange, even if your taxes show that you would qualify for a subsidy, you will not get a tax refund.

If you were on an employer’s plan or bought a product off exchange without a subsidy, you will receive documentation from the employer or the insurance company detailing your coverage for the year.

Accountants and CPAs

Congratulations, you are now on the front line of the Affordable Care Act. The forms referenced above will be part and parcel of every personal return you file this next year. Virtually all of your clients, unless their adjusted gross income is typically more than 500 percent of the federal poverty level for their family size, should be advised to purchase their health insurance through an exchange unless coverage is provided by their employer. Again, the only way to qualify for a tax credit is to purchase a policy through an exchange.

Small Employers with Fewer Than 50 Full-Time or FTE Employees

There is no requirement for you to provide health insurance to your employees. For the employers who do provide health insurance, they should document the entire premium, including how much the employer paid and how much the employee paid, on the employee’s Form W-2. There is a complete list of W-2 reporting requirements at 1.usa.gov/Yfzfv6.

In general, employers with 25 or fewer employees may qualify for a tax credit through the Small Business Health Options Program (SHOP). Based on the income level of the employees, the size of the business and the amount of premium paid by the employer, differing amounts of tax credits are available—worth up to 50 percent of the amount paid by the employer.  To see a Small Business Tax Credits table, go to bit.ly/1tNMKiE, and click on the Small Business Tax Credits link. For a full discussion of the small business employer tax credit and reporting requirements, go to 1.usa.gov/1bheKwh.

As a practical matter, though, SHOP might not make sense for you or your employees. In virtually every case, it is less expensive for the employees and for the employer to simply establish a private exchange and a Section 125 cafeteria plan. The employer can then fix their health insurance costs to a specific dollar limit per employee, and the employees can receive government subsidies to help offset the cost of their entire family’s health insurance.

Since employers using SHOP are required to pay a minimum of 50 percent of each employee’s premium, the tax credit received is often outweighed by the cost of the premiums. In addition, from the employees’ perspective, the employer is typically only subsidizing the employee’s premium while the federal government is subsidizing the premium for the entire family.

Additional drawbacks to SHOP are that, right now, the employees are limited to one specific carrier chosen by the employer, and the tax credits that are intended to induce employers into the program are only available for two years.

The rules and the timelines are more complex for employers with 50 or more employees. The best strategy is to consult an insurance specialist trained on all the Affordable Care Act’s intricacies.