Time is almost up to enroll in the Affordable Care Act’s (ACA) federal or state marketplace health care, and if you are not enrolled in minimum coverage health insurance by March 31, 2014 you must pay a penalty. We know the Affordable Care Act is confusing, so we tried to break it down and put it in layman’s terms so you know exactly what’s in store for the future.

The new healthcare law mandates everyone have what’s called “minimum essential coverage.” This includes individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE, and certain other coverage options.

Individual Penalty: 

– If you do not enroll in health insurance before March 31st, you will have to pay a fee, often called the “penalty” or “shared responsibility payment.” There are some exemptions to this rule such as religious objections, people who earn too little to file tax returns, and those for whom insurance would eat up more than 8% of their income, among others.
– Not everyone will pay the same amount of penalty for not enrolling in health care. For 2014, the individual penalty is whichever of the following is higher:

– 1% of your yearly household income (only the amount above the tax filing threshold is used, $10,150 for an individual)
– $95 per person for the year($47.50 per child under 18).

Individuals who lack coverage for only part of the year will only pay part of the penalty, and individuals who are without coverage for less than 90 days do not need to pay the penalty either.
– This penalty increases every year following the scale below:

– 2015 it is 2% of income or $325 per person
– 2016 it rises to 2.5% of income or $695 per person
– 2017 onwards the penalty is adjusted for inflation

– Once the IRS determines this penalty should be assessed they will immediately do so. No notice is required, no 90-day period, no access to Tax Court, no right of appeal. They cannot necessarily file a lien or levy against you, but they may offset a taxpayer’s federal tax refund by the amount of any unpaid taxes.

– For those who are considered to be high-income individuals (those who make over $200,000 per year alone or $250,000 if married and filing jointly), there are a few more provisions to the law that you must be aware of. The law raises the Medicare tax on wages and subjects investment income to a Medicare tax for the first time. This increases the Medicare taxes on their earned income by .9% (on top of the 1.45% Medicare tax that they currently pay on all of their wages), and subjects their investment income to a penalty of up to 3.8% on at least a portion of their capital gains and dividends.

– As a result of the Affordable Care Act, the medical deduction threshold has been raised. You may only deduct medical expenses that exceed 10% of your adjusted gross income (up from 7.5% adjusted gross income). It has also raised the penalty on nonqualified Health Savings Account (HSA) distributions for money spent on something other than qualified medical expenses. Those purchases are now subject to a 20% tax (up from 10%).

Individual Subsidies and Credits:

– Along with penalties, the law also offers subsidies to low- and middle-income families and provides tax credits to most families who sign up for coverage on the state and federal exchanges (through healthcare.gov or your state’s equivalent). This credit can be an advance payment used immediately to lower your monthly premium costs. There are calculators on the internet which help calculate how much your family will receive in subsidies or credits, and we recommend this one https://kff.org/interactive/subsidy-calculator/.

 Employer Mandate Penalty:

–The employer mandate which requires employers with 50 or more full-time workers to provide qualified, affordable health insurance will go into effect in 2015. An employer will have to make a “shared responsibility” payment if it a) does not offer employees and their dependents an employer-sponsored health plan with minimum essential coverage and if any full-time employees qualify for federal insurance subsidies, or b) it offers such a plan but the plan proves too expensive for some employees who otherwise would qualify for federal subsidies. The fees are as follows:

–$2,000 per year for every improperly-insured full-time employee if insurance is not offered
– If at least one employee receives a tax credit because coverage is unaffordable or does not cover 60% of total costs, the employer must pay either $3,000 for each of those employees receiving a credit or $750 for each of their full-time employees, whichever is less.

– Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax deductible.

Employer Mandate Credits:
– For 2014-15, the Obamacare tax credit is as much as 50% of the premiums you pay as a for-profit employer and 35% for tax-exempt employers, so long as the insurance was purchased through the state or federal exchange. Through 2015, a company with fewer than 25 full-time employees with an average annual wage less than $50,000 can get a tax credit for a percentage of the health insurance premiums it pays for its workers.

Things to know for 2013 taxes:

– To start, there is only one tax law change for 2013 that could affect taxpayers in all income groups: the change to deductible medical expenses when a taxpayer is itemizing deductions. Only medical expenses that exceed 10 % of your adjusted gross income will be allowed as a deduction. (Taxpayers who are age 65 or older in 2013 still have a medical deduction floor of 7.5 percent.) This change will affect all those who itemize deductions and claim a medical expense deduction so if you typically claim this deduction, you’re going to want to watch for this change.
– The other two changes for 2013 that come from the Affordable Care Act are the two explained above which affect high income taxpayers, the additional 0.9% Medicare tax and the new 3.8% Medicare surtax on Net Investment Income (NII). NII includes investment income such as interest, dividends, capital gains, passive income, and rental or royalty income. The tax is assessed on the smaller of the total NII or excess income greater than the income thresholds.

We hope this clears up your confusion and gives you an idea of what to expect for next year’s tax season, and this year is your best (and healthiest) yet!  Please contact us if you have any more questions regarding the Affordable Care Act.
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Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.