In a nutshell, the Individual Health Reform Mandate will require all Americans including citizens and resident aliens to purchase at least basic health coverage beginning in 2014. The consequences of failing to do so will come in the form of a tax penalty. In tax year 2014, the penalty will be the greater of:
- A fixed $95.00 per adult and $47. 50 per child or
- One (1) percent of the household income.
This fixed amount is capped at three times the dollar amount for adults.
For example, if you have a family of two adults and three children, the family will have a fixed dollar amount of $285 or ($95 x 3), instead of ($47.50 x 3 children) + ($95 x 2 adults) = $332.50. Here the three children are counted as one adult.
In this example, the penalty would be the greater of:
- $285, which represents the fixed amount, or
- 1 percent of the household income.
These values increase in future years to account for inflation. The crux of the Individual Health Reform Mandate is to:
- Prevent insurance companies from unfairly raising insurance rates, or
- Stopping coverage for insured, or
- Taking advantage of their customers.
Who is Exempt?
Obviously, there will be exempt individuals from the requirements set forth in the mandate, particularly those who truly cannot afford the cost of individual health coverage and those subject to extenuating circumstances. These will make up a very minute portion (less than 2%) of the expected covered individuals. These individuals include:
- Members of recognized religious sects exempt from self-employment taxes; [§5000A(d)(2)(A)]
- Members of healthcare sharing ministries; [§5000A(d)(2)(B)]
- Non-citizens or nationals who are non-resident aliens or are in the US illegally; [§5000A(d)(3)]
- Incarcerated individuals, other than those who are incarcerated after dispositions of charges. If the charges are pending, this exemption does not apply; [5000A(d)(4)]
- Members of Indian tribes; [§5000(A (e)(3)]
- Individuals with a short coverage gap, which is generally less than three months; [5000A(e)(4)]
- Individuals whose income is below the filing requirements (includes income from dependents claimed by the taxpayer); [§5000A(e)(2)]
- Those who cannot afford coverage based on their expected contribution being higher than 8 % of their household income; [§5000A(e)(1)]
- Individuals with a hardship exemption certificate; (based on facts and circumstances after all other exemptions don’t apply. This is based on the marketplace determination not the IRS); [§5000A(e)(5)]
How do I Pay this Penalty?
The penalty is calculated and imposed on your individual tax return and is paid with the return. If the penalty is not paid, demand will be made by the IRS and follows the procedures similar to penalties such as:
- § 6721. Failure to file correct information returns
- § 6722. Failure to furnish correct payee statements
- § 6723. Failure to comply with other information reporting requirements
- § 6724. Waiver; definitions and special rules
- § 6725. Failure to report information under section 4101
An example of a penalty is the willful failure to furnish Form W-2 to the employee. The IRS cannot, however, levy property for the individual mandate penalty. The IRS’s only recourse is to offset your refunds.
A Closer Look at the Marketplace
Each state’s official health insurance exchange is moderated by the ACA. These exchanges will make shopping for, obtaining, and maintaining qualifying insurance plans much easier for American citizens by providing a sort of “one-stop shopping” option they can utilize.
To be listed, each insurance option, offered to citizens via the exchange, will have to undergo an intensive evaluation and need to adhere to strict standards. Each plan included as part of the exchange will be guaranteed to provide essential and necessary health benefits while also helping American citizens to qualify for any programs and additional perks that are available to them.
The exchange is designed to make the process simple when comparing the benefits of one plan to another. Furthermore, all of this information is available online. For more information, go to www.healthcare.gov.
If you need assistance understanding the ACA and the individual health care mandate, please contact our office.
Pursuant to US Treasury Department Regulations, you are advised that any information and advice, including any attachments and enclosures, may not be used for the purpose of (i) avoiding any tax liabilities and or penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to any other person(s) any tax-related matters addressed herein.