The Affordable Care Act and You

The Patient Protection and Affordable Care Act of 2010 resulted in several changes to the U.S. tax code that affect individuals purchasing health care insurance through the health care exchanges. Let’s take a closer look at what it all means for you.

Individual Shared Responsibility Payment

Starting January 2014, United States citizens and legal residents must obtain minimum essential health care coverage for themselves and their dependents, have an exemption from coverage, or make a payment when filing a 2014 tax return in 2015. The Individual Mandate is also known as the Individual Shared Responsibility Payment.

The payment varies and is based on income level. In 2014, the basic penalty for an individual (no dependents) is $95 or 1 percent of your yearly income (whichever is higher), with substantial increases in subsequent years. For example, in 2015, the penalty is $325 or approximately 2 percent of income, whichever is higher. In 2016, it increases to $695 or 2.5 percent of income (again, whichever is higher), indexed for inflation thereafter.

The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Health Insurance Marketplace in 2014. You will make the payment when you file your 2014 federal income tax return in 2015.

For example, a single adult under age 65 with household income less than $19,650 (but more than $10,150) would pay the $95 flat rate. However, a single adult under age 65 with household income greater than $19,650 would pay an annual payment based on the 1 percent rate.

For any month in 2014 that you or any of your dependents don’t maintain coverage and don’t qualify for an exemption, you will need to make an individual shared responsibility payment with your 2014 tax return filed in 2015.

However, if you went without coverage for less than three consecutive months during the year you may qualify for the short coverage gap exemption and will not have to make a payment for those months. If you have more than one short coverage gap during a year, the short coverage gap exemption only applies to the first.

Most people already have qualifying health care coverage and will not need to do anything more than maintain that coverage throughout 2014. Self-insured ERISA policies used by larger employers, as well as Medicare, Medicaid and CHIP (Children’s Health Insurance Program), and all of the health insurance plans offered by the exchanges, fall under the category of minimum essential health care coverage.

Qualifying coverage does not include coverage that may provide limited benefits, such as coverage only for vision care or dental care, workers’ compensation or coverage that only covers a specific disease or condition.

Note: Certain individuals are exempt from the tax and include: (1) people with religious objections; (2) American Indians with coverage through the Indian Health Service; (3) undocumented immigrants; (4) those without coverage for less than three months; (5) those serving prison sentences; (6) those for whom the lowest-cost plan option exceeds 8 percent of annual income; and (7) those with incomes below the tax filing threshold who do not file a tax return($10,000 for singles and $20,000 for couples under 65 in 2013).

A special hardship exemption applies to individuals who purchase their insurance through the Health Insurance Marketplace during the initial enrollment period for 2014 but due to the enrollment process have a coverage gap at the beginning of 2014.

Premium Tax Credit

Effective in 2014, certain taxpayers will be able to use a refundable tax credit to offset the cost of health insurance premiums so that their insurance premium payments do not exceed a specific percentage of their income. Qualified individuals are those with incomes between 133 percent and 400 percent of the federal poverty level. A sliding scale based on family size will be used to determine the amount of the credit. In addition, married taxpayers must file joint returns to qualify.

If you purchased coverage through the Health Insurance Marketplace (sometimes referred to as health care exchanges), you may be eligible for the premium tax credit. This refundable tax credit helps people with moderate incomes afford health insurance coverage they purchase through the exchange.

The premium tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. To be eligible for the credit, you generally need to satisfy three rules.

First, you need to get your health insurance coverage through the Health Insurance Marketplace. The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from October 1, 2013 through March 31, 2014.

Second, you need to have household income between one and four times the federal poverty line. For a family of four for tax year 2014, that means income from $23,550 to $94,200.

Third, you can’t be eligible for other coverage, such as Medicare, Medicaid or sufficiently generous employer-sponsored coverage.

Don’t hesitate to call us if you need assistance navigating the complexities of the Affordable Care Act. We’re here for you!