How Much Will I Owe?
The penalty for not having “essential minimum coverage” per the Affordable Care Act is going up in 2015 and again in 2016. The important part of the language regarding the penalty is that you will pay the higher of two amounts – either the flat minimum for the tax year or a percentage of your yearly income that is above the tax filing threshold, about $10,150 for an individual in 2014.
In simplified terms, if you make more than what would qualify you for the flat minimum penalty, your Individual Mandate Penalty = (Total Yearly Income – Tax Filing Threshold) x % for the Tax Year.
For those of you without insurance, in 2014 the Shared Responsibility Payment was likely to be above the minimum amounts published in the press. This is because, put simply, the penalty was computed as the greater of 1 percent of your household income or the flat dollar amount for your family. In 2014, that flat amount was $95 per person or $285 per family.
In 2015, those minimums have gone up to the greater of 2.0% of your household income (minus your filing threshold) or $325 per person ($975 per family). Expect to see these figures when we look at your taxes for 2015.
In 2016, you will pay the greater of: 2.5% of your household income or $695 per person ($2,085 per family). As in previous years, the 2.5% is applied only to your income that is above the minimum filing threshold.
Issues with the Healthcare Exchange (aka Healthplanfinder.org)
For many business owners, the Exchange site does not make it easy to report your net income – they try to quiz you, but the quiz has often led to confusion even among people who fully grasp income and taxes. Distinguishing between owning your own corporation and being self-employed are nuances that can present a challenge.
What are my options?
There are definitely some misunderstandings about coverage options available to you. Options that may ease your pain with regard to insurance itself include:
- Opting for a plan that allows for co-pays for office visits, so you don’t have to satisfy your deductible before getting any benefit at all from your coverage.
- If you do have a high deductible health plan (HDHP), coupling that with a Health Savings Account (HSA) can provide you with tax savings via the HSA while you save up funds to pay out of pocket medical expenses.
- Realize that you may be in line for a tax credit for having coverage purchase through the Exchange. There are income thresholds of course, but if you don’t go through the Exchange you are automatically disqualified from the credit.
- If you see questions that know how to answer but don’t have exact figures, make your best estimate. You should not stop the application process only because you can’t get your amounts down to the penny or you have variable income you need to estimate.
The Cost of Being Uninsured
I’ve had a number of clients come through saying that insurance wasn’t affordable for them. When you consider the penalty that you will be assessed for not having coverage, the affordability discussion really changes. Please take time to explore once again the possibility of getting coverage through the exchange to avoid these penalties. It may be too late to avoid these for 2015, but it’s the time now to get on a plan for 2016 before it’s too late.
The IRS has a page showing examples of the penalty calculation for 2014. If you extend the second of those examples to 2016, the penalty that was $497 in 2014 will increase to $1,243 in 2016. There’s a good chance that if the coverage is truly unaffordable, you may qualify for one of the state’s subsidy program, or be eligible for a tax credit, either of which will help offset or reduce the cost of coverage, and possibly by a lot. Click here for the IRS examples using 2014 thresholds. https://www.irs.gov/ACA Shared Responsibility Examples
Still Have Questions?
If you need assistance with this issue, please call us and we can help you determine the total cost of the penalty for the time you are uninsured and how this fits in with your total tax picture. We can also refer you to one of our partners who have expertise in this very subject if your questions go beyond taxes. We know that healthcare coverage is but one piece of a complex puzzle unique to you, so we’re ready to answer any other tax and small business questions you may have as well.