Obamacare and Your Tax Liability

Obamacare Healthcare Insurance Premium Tax

Healthcare

The Affordable Healthcare Act is benevolent in its intent: it seeks to make health insurance affordable, and prevents healthcare companies from denying coverage for preexisting conditions. However, it has also proven to be incredibly confusing to many taxpayers and has caused some to forego buying insurance on the Healthcare Marketplace. We’ve compiled a sort of 101 to help you understand how the Affordable Care Act can impact your 2017 tax return.

You qualify for a discount to help offset your insurance premiums if your total household income is between one to four times the Federal Poverty Level. You can choose to apply these credits to your insurance costs to lower your monthly bill, or apply them to your tax return the next year.

If you’re on Medicare or have insurance through your employer, Obamacare doesn’t apply to you. Here’s two important points for individuals:

Individual Mandate: Americans who can afford to obtain health coverage must do so for the majority of the year (more on that later) unless they qualify for an exemption. Filers who do not obtain insurance will be assessed a monthly fee.

Advanced Premium Tax Credits: Low-to-middle income Americans are eligible for tax credits, which can reduce the upfront cost of premiums on health insurance purchased through their State’s Health Insurance Marketplace.

Who is Exempt?

Some Americans are exempt, meaning that do not have to pay a penalty if they are not insured.

Such scenarios include:

  • Filers whose income is so low that they aren’t required to file a tax return.
  • Anyone who would have to pay more than 8% of their income for insurance
  • Members of religious groups whose beliefs prohibit health insurance benefits
  • Incarcerated individuals
  • Members of Native American tribes
  • Undocumented immigrants

Tax Penalties for the Uninsured 

You can be charged a tax penalty if a) you do not have health coverage and b) don’t qualify for an exemption. But how are penalties calculated? It depends on the following: your household income, how many people in your household were not covered by health insurance, and how long they were without coverage.

In 2016 the rates stood at 2.5% of income, or $695 per uninsured adult. Starting in 2017, annual rates will be adjusted for inflation. Note that if you are uninsured for only part of the year, the penalty is prorated to cover only the months for which you were uninsured. You will not be assessed a penalty for a gap in coverage less than three months long–which is called a “short gap.” However you are only allowed one short gap per year.

Image credit: Michael Havens

How Not Having Healthcare Affects Your Taxes

Obamacare has created a storm of debate in the US. One of the reasons for this is it’s now illegal to not have a minimum level of health coverage. Failing to have healthcare will affect your taxes and the way you pay them. To learn more keep reading.HealthInsurancePic

The Penalties

The reason why not having healthcare and tax are so closely linked is that the fine is paid when you file your taxes. In 2015, the penalties of not having healthcare are thus:

  • $325 for each uninsured adult.
  • $162.50 for each uninsured child.
  • Alternatively, 2% of your family’s taxable income for the year.

This cannot amount to more than $975 per family.

Take note that this is set to go up every year. The government is effectively trying to force people into coming up with the money to afford basic health insurance.

How to Avoid Paying for Healthcare

If you enroll in an insurance plan, you can avoid paying the penalties. If you really can’t afford it, there’s financial help available from the Federal government in the form of subsidies and tax credits. You have to enroll in the plan setup by your state, though.

Qualifying for the subsidy is a completely different ball game, though. You can’t qualify unless your income meets certain requirements. These requirements are low, so the majority will have to find the money for basic healthcare insurance.

There are plenty of websites available to help you find the best deal on health insurance. You may even discover your workplace offering a healthcare plan that would get you out of paying these penalties.

Image credit: Pictures of Money

Who May Get a Surprise Obamacare Tax Penalty?

The new affordable health care act was confusing for some people at its inception. This is the first time that U.S. citizens are navigating a single health care marketplace. For many, picking out insurance based on the rules were a little more confusing than anything else. This is likely to extend over to tax time due to the penalties imposed. There are some parties who may find themselves with a surprise penalty during tax time.HealthcarePic

Those with outside low cost insurance

Some low cost insurance plans existed before the affordable health care act. Many of these offered a fixed rate payment for medical procedures. These plans were often popular with those who were young and self-employed or independent contractors. One of the issues with these plans is that they do not meet the minimums for Obamacare. These people may find a tax penalty assessed, even though they have insurance.

Those who pay out of pocket

Some people, especially those with high incomes, may choose to pay out of pocket for care. Others will have a doctor on staff or concierge doctors. Concierge doctors provide care to their own patient list and assess a yearly fee.  Citizens who use these services will find a 2% penalty on their taxed income. While for some this may be a low amount, for others it can be hefty. For those with a huge tax bill, another 2% can be large amount to add on.

Those who lost jobs

If you lose your job and your health insurance goes with it, you may be subject to the penalty. The loss of a job equals immediate lost income. This year, it will also mean an extra $325 or 2% tax penalty, whichever is greater.

Image credit: Sharp HealthCare

  • Huddleston Tax Accountants / Huddleston Tax CPAs – Redmond, WA
    Certified Public Accountants Focused on Small Business
    8201 164th Ave NE Suite 200 / Redmond WA 98052
    425-483-6600

    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
    QuickBooks consulting, bookkeeping, payroll, offer in compromise debt relief, and business valuation services for small business.

    We serve Tukwila, Auburn, Federal Way. We have a few meeting locations. If you are looking for a Redmond CPA firm, get in touch with us! Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.