The Patient Protection and Affordable Care Act (aka health care reform or “ACA”) enacted in March 2010, is comprehensive legislation affecting taxes, insurance, Medicare and Medicaid, among others, and is to be implemented over an 8-year period. So what is on the horizon for 2014 and 2015 taxes?
When we last left the ACA in 2013, we saw the implementation of the new Medicare 0.9% surtax on incomes over $200,000 ($250,000 for married filing jointly), as well as the new Net Investment Income Tax of 3.8% on investment income also for those with incomes over $200,000/$250,000. (For those who are curious, the Obamas paid $2,310 in combined Additional Medicare and Net Investment Tax, according to their 2013 tax return.)
The latest installment of the ACA in 2014 introduces the “individual mandate,” which requires Americans to have basic health insurance coverage or be liable for a tax penalty. Minimum essential coverage includes employer-sponsored plans, coverage purchased in the individual market, and coverage provided by a government-run program, such as Medicare. When purchasing on the open market, one may be eligible for premium assistance.
For 2014 the penalty is up to $47.50 per child and $95 per adult or 1 percent of the family income, whichever is greater. In fact some young, healthy individuals plan to forgo obtaining health insurance, and instead just pay the penalty due to the relatively low cost. However, it goes up substantially in 2015 to $162.50 per child and $325 per adult, or 2 percent of the family income, whichever is greater, and more than doubles in 2016 and beyond. The annual penalty is prorated for the number of months without coverage, unless it is just short coverage gap, meaning any continuous period of less than three months.
Although the penalty may seem like the most cost-effective alternative to some individuals, one still would not have health coverage, in the event of illness or injury. For individuals who purchase coverage through an American Health Benefit Exchange and if the individual’s household income is at least 100 percent, but not more than 400 percent, of the federal poverty line may have the opportunity for a credit. The following is a chart for the 2013 household incomes that would qualify:
- $11,490 (100%) up to $45,960 (400%) for one individual.
- $15,510 (100%) up to $62,040 (400%) for a family of two.
- $23,550 (100%) up to $94,200 (400%) for a family of four.
The credit is on a sliding scale, ranging from 2 – 9.5 percent of income, based upon the individual’s income. One can choose to take the credit paid in advance to lower the actual premium (which you must reconcile with your actual credit when you file your tax return) or you can claim the credit when you file your tax return.
If such affordable coverage is not available to an individual, they may be eligible for an exemption, which can be claimed on the tax return, using Form 8965. You can also apply for an exemption through HealthCare.gov. California’s health insurance exchange, Covered California, does not provide exemptions; they must be obtained through the federal agencies. To see if you qualify for an exemption, review the various criteria for exemptions on the IRS webpage, Individual Shared Responsibility Provision – Exemptions.
Please contact us at Len@ArinielloCPA.com if you have any questions regarding how the new tax provisions of the ACA affect you.
