The Affordable Care Act (also known as “Obamacare”) was signed into law in 2010, but many of the provisions do not commence until 2013 and beyond. So, what does that mean for you? In this article, we will explore the new health insurance mandate and specifically, how it may impact your income taxes.
Individuals who do not have Employer-Provided Health insurance
Beginning in 2014, all individuals will be required to purchase health insurance or face a tax penalty. Those who do not have access to affordable insurance coverage through work will be able to buy insurance through a state-based Health Benefit Exchange.
For those families whose Modified Adjusted Gross Income (MAGI) is between 100% and 400% of the federal poverty level, there is a subsidy available to reduce the premium cost. Subsidies are paid directly to the insurance company and are only available if the insurance is purchased through the health benefit exchange.
The health care exchanges open on October 1. To find your state’s exchange information visit www.Healthcare.gov. On the website, a person is able to explore the options, price the insurance, and apply for coverage.
When applying for the coverage, a person will be asked to estimate their MAGI in order to determine if they are eligible for the subsidy. It is important to note that the subsidy will be reconciled when filing your personal income tax return. So, if the subsidy was too high for the year, the taxpayer will owe additional taxes when filing their tax return. In contrast, should a taxpayer be eligible for a larger subsidy, they will get an additional tax credit on their return.
What happens if you don’t have health insurance in 2014? You will have to pay an additional tax of 1% of taxable income. The tax applies to the taxpayer and up to two additional dependents.
What is required of Employers?
Beginning in 2015, employers with 50 or more employees must provide health insurance to employees, or make a non-deductible “shared responsibility” payment. Employers with less than 50 employees are not required to provide health insurance. However, if they do, it is possible that they will qualify for a tax credit.
From 2010 to 2013, the maximum business tax credit is 35% of the employer’s premium expenses. For 2014 and later, the maximum credit increases to 50%. The credit is claimed on the employer’s annual tax return and beginning in 2014, can only be claimed for two years. To be eligible for the tax credit, the following conditions must be met:
- There must be fewer than 25 full-time employees
- Average annual wages for all full-time employees must be less than $50,000
- The employer must contribute at least 50% of the premium cost
Beginning in 2014, it is required that the employee’s health insurance be purchased through the state-run health exchange in order for the employer to receive the business tax credit.
There is currently a significant amount of confusion about the Affordable Care Act. If you are exploring your options and need guidance, please let us know. We can definitely help ensure this new legislation does not cause a tax surprise on your 2014 tax return!!