Recently I have been asked by family and friends about how the Patient Protection and Affordable Care Act (ACA) is going to affect their tax situation, especially if they elect out of the individual insurance mandate. Under the ACA, an individual shared responsibility payment has been established. The payment, or penalty, applies if an individual can afford health insurance but elects not to purchase it and does not qualify for an exemption. Individuals must be registered with the minimum health insurance established under the ACA by March 31, 2014 to avoid being subject to this payment.
The penalty for the 2014 tax year is the greater of 1.0% of an individual's taxable income or $95 per adult and $47.50 per child. The penalty per family is capped at $285 per family for the 2014 tax year. The penalty is being phased in through 2016 to a maximum 2.5% of taxable income or $695 for an adult and $347.50 per child ($2,085 max per family). After 2016, the penalty is scheduled to be increased by the annual cost of living adjustment. The penalty will be assessed and collected on the individuals' annual personal income tax return.
The following can request an exemption from the individual mandate:
- Members of a religious organization with religious objections to insurance, including Social Security and Medicare
- Members of a recognized health care sharing ministry
- American Indians who are eligible for services through an Indian Health Services Provider
- Those uninsured for less than three months of the year
- Those incarcerated and not awaiting disposition of the charges against them
- Illegal Immigrants
- Those whose lowest-priced coverage available would be greater than 8% of their annual household income
- Those with no income tax return filing requirement due to income being below filing thresholds
The ACA also allows an exemption due to a financial hardship. The ACA defines a financial hardship as one of the following:
- Evicted in the past six months or are facing an eviction or foreclosure
- Received a shut-off notice from a utility company
- Recently a victim of domestic violence
- Recently had a close family member pass away
- Recently experienced a natural or human-caused disaster that caused substantial damage to their personal property
- Filed for bankruptcy in the past six months
- Had medical expenses that could not be paid within the past 24 months
- Recently experienced an unexpected increase in necessary expenses due to caring for an ill, disabled or aging family member
- Determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid under the ACA
Many legislators are currently urging the White House to push the deadline beyond March 31, 2014. At the time of this article, the White House had not responded to the request.
© 2013 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.