What you need to know about health insurance & taxes

We receive many calls about the health insurance requirements under the Affordable Care Act. Below we outline, in plain English what is defined as coverage, how exemptions work and how the penalties are calculated.

If you are a U.S. citizen or non-U.S. citizen living in the U.S., you must maintain basic health insurance coverage (known as minimum essential coverage) for yourself and any of your dependents, qualify for an exemption, or pay a shared responsibility payment (a penalty). You will be treated as having minimum essential coverage for the entire month as long as you are enrolled in and entitled to receive benefits under a plan or program that qualifies as minimum essential coverage for at least one day during that month. Minimum essential coverage includes employer provided coverage, insurance purchased through the health insurance marketplace (the Marketplace or Exchange), and coverage under government sponsored plans (e.g., Medicare, Medicaid, CHIPS and veterans benefits). The requirement to maintain coverage or pay a penalty is known as the “individual mandate.”

You may qualify for an exemption if you were uninsured for less than 3 months of the year, the lowest priced coverage costs more than 8.13% of your household income for 2016 (8.05% for 2015), your income is below the return filing threshold, you live abroad, you are a member of a health care sharing ministry, Indian tribe or certain religious sects, you are incarcerated, or obtaining coverage would create a hardship. Some exemptions are obtained by filing a Marketplace exemption application and others must be claimed when you file your tax return.

For 2016, the penalty is the greater of (i) $695 per person for the year ($347.50 per child under 18) up to a maximum penalty per family of $2,085, or (ii) 2.5% of your household income over the applicable filing threshold. The penalty is capped at the national average premium for a bronze plan. For 2015, if you don’t have coverage you’ll pay the greater of (i) $325 per person for the year ($162.50 per child under 18) up to a maximum penalty per family of $975, or (ii) 2% of your household income over the applicable filing threshold; again capped at the national average premium for a bronze plan. You must make the shared responsibility payment when you file your federal income tax return. You will owe one-twelfth of the annual payment for each month you or your dependent(s) don’t have either coverage or an exemption.

You may be eligible for the premium tax credit if you buy health insurance through the Marketplace, are ineligible for coverage through an employer or government plan, are within certain income limits, do not file a Married Filing Separately tax return (unless you are a victim of domestic abuse and spousal abandonment), and cannot be claimed as a dependent by another person.

If you have questions about the requirements and penalties, please contact your LSSK accountant.  It is important that you are aware of the potential penalty of not having insurance, as it may be cheaper than the penalty.

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