With very few exceptions March was the last month to enroll in MNsure, the Minnesota health insurance exchange that was formed to implement the Affordable Care Act requirements. If you or members of your family still have no health insurance coverage, you could be in for an unpleasant surprise when you prepare your 2014 tax return.
The principal objective of the ACA is to get everyone covered by at least a basic health insurance plan. To incentivize people to enroll in a plan, the Act provides for a tax penalty, sometimes referred to as the “individual mandate” on those who don’t. Initially $95.00 was commonly bandied about as the penalty for not participating in an insurance exchange but a deeper look at the provision shows that $95.00 is the MINIMUM tax penalty…maybe.
In reality, the MAXIMUM penalty for non-participation is the “national average annual premium for an ARA bronze policy” which in 2014 is $3,600 per adult and $1,900 for a child.
Like most provisions of the U.S. tax code, calculating what you can expect to pay in the way of a penalty is complicated and it’s not our intention here to offer up tax advice. However generally speaking the penalty for 2014 is based on the LARGER of:
- 1% of your household income above $10,150 up to a maximum of $3,600 per adult and $1,900 for each child.
- $95.00 per adult and $47.50 per child under 18. The maximum penalty for a family is $285.00.
Here’s a simplified example to give you an idea how it works:
- A single taxpayer earns $45,000 in 2014. The penalty will be based on $45,000 – $10,150 or $34,850
- The tax will be 1% of $34,850 or $348.
- If a single taxpayer makes $19,650 or less the tax will be the flat rate of $95.
- Single taxpayers reporting $10,150 or less owe no penalty.
Depending on your income and filing status, your tax penalty could be significantly more than you might have expected.
Can You Avoid The Tax? – Yes if…
You can toss part of the whole “individual mandate” and the associated tax penalty out the window if you purchase a health insurance plan that meets the ACA’s requirements as a “qualified” plan. Your penalty will then be reduced by an amount based on the number of months that you have coverage.
So much hype was published about March being the last month that you could purchase private health insurance that there is a general perception that you can’t buy a plan until open enrollment next October. That’s just not true. Many high quality insurers continue to offer ACA compliant health plans at competitive prices.
Do yourself a favor. Avoid the full tax penalty (it goes up every year by the way) and protect yourself from medical emergencies and potential financial disaster by calling us and exploring what is available in the way of ACA approved health plans today.
