2014 is the first tax year where Americans without health insurance are going to see amounts added to their tax bills due to the Individual Shared Responsibility Payment that came into effect as part of the Affordable Care Act in 2010. Earlier this year, there were numerous media reports about this, but since many were less than accurate, and these payments are coming due soon, I thought I’d remind everyone about them, so there aren’t any surprises.
A Little Background
When the Affordable Care Act (ACA) was made law in 2010, part of it–the Individual Shared Responsibility Provision–called for a tax/penalty to be leveled against U.S. citizens and resident aliens who aren’t covered by a minimum level of statute-defined health insurance, either through self-coverage or an employer, as of December 31, 2013.
By way of example, in 2014, if a 40-year-old non-smoker were to buy their own health insurance plan in King County , WA, the premiums would be around $200 per month. If that same person chose to not carry health insurance, the Affordable Care Act states that he wold have to pay a Shared Responsibility Payment when he files his 2014 tax return in 2015. If he was married and claimed dependents on his tax return, there would be a Shared Responsibility Payment for each of them as well, if they did not have minimum coverage under some form of health insurance.
The Shared Responsibility Payment
During the initial media coverage of the ACA, there much talk about a $95 Shared Responsibility Payment if you chose not carry your own health insurance and your employer didn’t provide it. The truth is that most will pay more.
For 2014, the tax/penalty for not being covered by health insurance is the greater of a) 1.0 percent of income (after specific deductions have been made) or b) $95 per adult plus $47.50 per child, up to a maximum of $285 per family. The penalty is capped at the average cost for a health plan that meets the minimum legal standards.
The penalty applies for any month that a person, his or her spouse, and dependents aren’t covered by the minimally required health insurance. The single person from the previous example would pay 1/12 of the total calculated penalty if he was uninsured for one month of 2014.
The $95 Shared Responsibility Payment so often mentioned by politicians and journalists only applies if you’re single and have a net income of less than $10,000 for the purposes of calculating the penalty. For most taxpayers, the 1 percent calculation will yield a higher number. Most everyone who has not been covered by health insurance in 2014 should count on paying penalties closer to the $285 maximum flat amount per family, or somewhere between that and the annual cap.
For each year past 2014, the Shared Responsibility Payment increases. The percentage of income used for the calculation tax increases to 2 percent in 2015 and 2.5 percent in following years. The dollar penalty increases to $325 per adult plus $162.50 per child (with a family maximum of $975) in 2015; rises to $695 per adult plus $347.50 per child (with a family maximum of $2,085) in 2016; and is indexed for inflation in subsequent years.
A range of projections for the national average premium for bronze level insurance plan caps have been published, but no final numbers have yet to be released as of this writing. The official figures that will be used for the 2014 cap are not available yet, but they have been projected between $3,000 and $3,500 per adult and $1,500 to $1,900 per child.
Projections for 2015 and 2016 have generally been assumed to be 6 to 10 percent higher.
Making the Shared Responsibility Payment
If you owe a Shared Responsibility Payment, it will be made through your 2014 tax return.The forms are still being finalized, but the IRS has already stated that there will be question on the form asking whether or not you had the minimum health insurance coverage for 2014. Since the penalty is calculated on a monthly basis, since taxpayers will be required to provide some details regarding their health insurance (if they have any), and since there are a number of ways that qualifying taxpayers can be exempted from needing to make the payment, there will undoubtedly also be at least one new tax form to deal with.
For More Information
We will bring you more information as we learn it. For now, just be aware that if you aren’t carrying your own insurance or don’t have it through your employer, or if someone in your household isn’t covered, you’re likely to feel an additional bite when tax time gets here.
If you have questions or concerns about your specific situation, you’re welcome to contact us here at GPL. Our specialists will happily help you find answers.
The IRS also has extensive information about the Individual Shared Responsibility Provision at this link: http://www.irs.gov/uac/Individual-Shared-Responsibility-Provision.