Tax Dependents and the Affordable Care Act

Posted by on June 25, 2014 in Child Support, Family Law

The Affordable Care Act (“ACA”) went into effect on January  1, 2014 and requires that all parents must provide health insurance coverage for themselves and for their children.  Failure to maintain  health insurance for yourself and your children will result in having to pay a penalty to the IRS.   The ACA has provisions that affect how divorced or separated parents provide health insurance for their children.

The ACA provides that the parent who claims the child as a dependent on their federal income tax return is the one required to provide proof of health insurance coverage to the IRS when the tax return is filed.  The responsibility of reporting the health care coverage for the child cannot be assigned by a court order or divorce decree.  For example, if you are the custodial parent with the tax deduction for your children and the non-custodial parent is ordered to pay for health insurance for the kids, the custodial parent remains liable to the IRS to show proof of insurance coverage or pay a penalty. If the non-custodial parent has not complied with the court order and has failed to provide the insurance, the custodial parent claiming the deduction for the children will still be the one to pay the penalty.

The ACA may create the possibility for problems among parents where cooperation and communication is difficult if the dependency exemption switches between parents from year to year or the non-insuring parent always claims the children as an exemption.  The parent with the dependency exemption may find it difficult to provide proof of insurance to the IRS because the other parent carries the health insurance and refuses to provide that proof.  In high-conflict relationships between separated or divorced parents the issues of medical insurance coverage and tax penalties could drive them back to court.

The law does provide a mechanism for individuals to file for an exemption from having to provide insurance for various reasons such as religious reasons, incarceration of the parent who was providing health coverage, if coverage is deemed “unaffordable” or for some other hardship under the law.    Parents who are currently in the divorce process may need to have an order or agreement that the person who covers health insurance be ordered to provide proof of insurance or reimburse the custodial parent for penalties incurred from the IRS for failure to provide proof of insurance.  Parents should seek advice from their tax preparer, accountant or CPA when preparing their taxes.