WFJ Presents: Divorce and the Affordable Care Act: How the ACA Impacts Health Insurance and Tax Deductions for Minor Children
Every parent who is getting divorced should be sure to include in the final divorce decree a provision establishing which party will maintain health insurance coverage for the benefit of the minor children. Parents are responsible for ensuring that their dependents have minimum essential health care coverage. If there are any months of the year where the children were not covered, the parent who has the right to claim the child as a dependent on his/her taxes will face a tax penalty. This holds true even if the party who has the right to claim the children allows the other party to claim the deduction (as is often the case when parties agree to alternate years for claiming the children). This is because according to the IRS, the party who is allowed to claim the child as a dependent is the parent with whom the children spent the majority of overnights with during the year. This parent is referred to as the custodial parent. Liability for the tax penalty cannot be shifted to the non-custodial parent, even if the non-custodial parent claims the deduction.
So what if you find out that your ex-spouse hasn’t maintained insurance coverage for the children as ordered? The Department of Health and Human Services has indicated that if the non-custodial parent (the parent who spent fewer overnights with the children during the year) failed to maintain appropriate health insurance coverage, the custodial parent may apply for an exemption. The exemption, however, would only apply if the children were not eligible for Medicaid. The forms and instructions for applying for the hardship exemption can be found at the healthcare.gov website.
If your divorce is not yet finalized, consider utilizing the divorce decree as a tool for future enforcement of the health insurance mandate. One option could be to include a provision in the divorce decree that requires the party maintaining health insurance coverage to provide the other party with proof of coverage by a certain deadline. Another drafting option would be to include a way for the custodial parent who is not ordered to provide health insurance to recoup the IRS penalty if the non-custodial parent either fails to maintain the health insurance coverage or fails to provide the required proof of insurance.
Unfortunately, a lot of the details revolving around how the IRS is going to handle these issues remain unresolved. In this ever-changing area, it’s always best to consult with an attorney to get updates as the law progresses.
This blog is for general information purposes only and is not legal advice.