Who is exempt from the individual mandate?
You may be exempt from the individual mandate penalty if you:
- Cannot afford coverage
- Have income below the federal income tax filing threshold
- Are not a citizen, are not considered a national or are not lawfully present in the United States
- Experience a gap in coverage for less than a continuous three-month period
- Qualify as a religious conscientious objector
- Are a member of a health care sharing ministry
- Are a member of certain American Indian tribes
- Are given a hardship exemption by the Department of Health and Human Services
- Are incarcerated
How much will the individual mandate penalty cost me?
The penalty for not obtaining acceptable health care coverage is being phased in over a three-year period. The amount of the penalty is either your “flat dollar amount” or your “percentage of income amount”—whichever is greater.
For 2014, the annual penalty is either:
- One percent of your household income that is above the tax return filing threshold for your filing status; or
- Your family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285.
Your payment amount is capped at the cost of the national average premium for a bronze level health plan, available through the Marketplace in 2014. For 2014, the annual national average premium for a bronze level health plan available through the Marketplace is $2,448 per individual ($204 per month), but $12,240 for a family with five or more members ($1,020 per month).
Calculating your payment requires you to know your household income and your tax return filing threshold.
Household income is the adjusted gross income from your tax return plus any excludible foreign earned income and tax-exempt interest you receive during the taxable year. Household income also includes the adjusted gross incomes of all of your dependents who are required to file tax returns.
Tax return filing threshold is the minimum amount of gross income an individual of your age and filing status (for example, single, married filing jointly, head of household) must make to be required to file a tax return.
2014 Federal Tax Filing Requirement Thresholds
|Filing Status||Age||Must File a Return if Gross Income Exceeds|
|65 or older||$11,700|
|Head of Household||Under 65||$13,050|
|65 or older||$14,600|
|Married Filing Jointly||Under 65 (both spouses)||$20,300|
|65 or older (one spouse)||$21,500|
|65 or older (both spouses)||$22,700|
|Married Filing Separately||Any age||$3,950|
|Qualifying Widow(er) with Dependent Children||Under 65||$16,350|
|65 or older||$17,550|
The IRS will generally assess and collect individual mandate penalties in the same manner as taxes, with certain limitations. As a result, any penalty under the individual mandate will likely be subtracted from the tax refund that the individual is owed, if any.
Source: Internal Revenue Service
A key provision of the Affordable Care Act (ACA) is the individual mandate, which requires most individuals to purchase health insurance coverage for themselves and their family members or pay a penalty.
Starting in 2015, individuals will have to report on their federal tax return whether they had health insurance coverage for 2014 or were exempt from the individual mandate. Any penalties that an individual owes for not having health insurance coverage will generally be assessed and collected in the same manner as taxes.
How will coverage be reported under the individual mandate?
Starting in 2015, when you file a federal tax return for 2014, you will have to:
- Report that you, your spouse (if filing jointly) and any individual you claim as a dependent had health care coverage throughout 2014; or
- Claim a coverage exemption from the individual mandate for some or all of 2014 and attach Form 8965; or
- Pay an individual mandate penalty (called a shared responsibility payment) for any month in 2014 that you, your spouse (if filing jointly) or any individual you claim as a dependent did not have coverage and did not qualify for a coverage exemption.
If you and your dependents all had minimum essential coverage for each month of the tax year, you will indicate this on your 2014 tax return by simply checking a box on Form 1040, 1040A or 1040EZ; no further action is required.
If you obtained a coverage exemption from the Marketplace or you qualify for an exemption that you can claim on your return, you will file Form 8965, and attach it to your tax return.
For any month you or your dependents did not have coverage or a coverage exemption, you will have to make a shared responsibility payment. The amount of the payment due will be reported on Form 1040, Line 61, in the “Other Taxes” section, and on the corresponding lines on Form 1040A and 1040EZ.
Lookout for Thursday’s Blog to find out who is exempt from the individual mandate!
Source: Internal Revenue Service
Healthcare costs are increasing so its a good idea to be on the lookout for chances to claim tax breaks for medical expenses. Click this link to read more about insurance premiums you can potentially deduct on your 2014 return.
There is no such thing as a one-size-fits-all health plan. Everyone has different health insurance needs depending on their health care requirements along with those of their dependents. While some prefer standard deductible health insurance (often called a PPO health insurance plan), people are increasingly switching to a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) as a better way to maximize their health care dollars.
Standard Plans vs. HDHPs
Standard plans and HDHPs are set up much in the same way. Under both plans, the member pays a premium for coverage. Both must cover preventive services free of charge. If a member receives nonpreventive medical care, he or she pays a deductible—a specified amount of money that the insured must pay before an insurance company will pay a claim. The chief difference between the plans is that under an HDHP, premium payments are considerably lower and the deductible is considerably higher.
The minimum deductibles for HDHPs are established by the IRS. For 2015, the minimum deductible is $1,300 for individuals and $2,600 for families. Comparatively, standard plans come with a deductible that is generally quite a bit lower.
The cost of the higher deductibles for HDHP plans is offset by two factors. First, as previously mentioned, the premium price for an HDHP is much lower than standard plans. This means that members who use little or no medical care during the year can save hundreds of dollars that would otherwise go to unnecessary health coverage, while still remaining compliant with the individual mandate provision of the Affordable Care Act (ACA).
The second major factor setting HDHPs apart from standard plans is the addition of an HSA.
Health Savings Accounts
HSAs are one of several types of tax-advantaged health accounts, and are exclusively available to people enrolled in an HSA-compliant HDHP.
With an HSA, the account holder or his or her employer (usually both) make contributions into a savings account. No taxes are deducted from money placed into the account, as the HSA contribution is withdrawn from a paycheck before taxes are assessed. While in the savings account, the money can earn interest. The employee is free to spend that money on qualified medical expenses.
The total amount that can be placed in an HSA per year is capped by the IRS. For 2015, the maximum contribution limit is $3,350 for individuals and $6,650 for families, though account holders over 55 years old may contribute an extra $1,000 to those totals.
These limits are significantly higher than other types of tax-advantaged health accounts, and unlike the other options, HSAs have additional unique features that allow you to save more money and keep it over a longer period of time. Whereas funds in health Flexible Spending Accounts (FSAs) and Health Reimbursements.
Arrangements (HRAs) come with an expiration date or a maximum carry-over dollar amount, HSAs allow you to build your balance as high as you wish in perpetuity. Except for the cap on total contributions per year, there are no limits on how much money can be in your account and how long it remains open.
Additionally, HSAs are individually owned accounts, meaning employees take the account—including any employer contributions—with them if they leave their employer.
Using Health Care with an HDHP
Because of the high deductibles associated with HDHPs, having an HDHP means you need to become a smart health care shopper.
The most important thing to keep in mind is that some types of health care products and services cost much more than similar items, and the more expensive option may not be necessary for the treatment you require.
Additionally, like most other health plans, HDHPs cover preventive services at no cost. Preventive care is defined as medical checkups and tests, immunizations and counseling services used to prevent chronic illnesses from occurring. Preventive care not only keeps you healthy, but it can also monitor and even reduce the risk of developing future, costly health problems.
Most types of specific preventive services are listed here. While it can sometimes be difficult to determine if a specific medical service qualifies as preventive, you can call your health plan to learn if a service is considered preventive before receiving it.
Other medical savings strategies people with HDHPs should consider are:
- Using a generic in place of a name brand prescription can result in significant savings. While there is not a generic version for every type of drug, the only difference between a branded drug and a generic counterpart is the name; they both have the same active ingredients. If you need medication, find out what class of drugs your prescription is classified under. If you receive a name brand prescription from a doctor, ask if a generic is available.
- Emergency Room vs. Urgent Care.Like prescriptions, there is a sizable cost adjustment between emergency rooms and urgent care. It is very expensive for hospitals to support all of the equipment and staff that an emergency room requires, so visits to the emergency room generally cost much more than those to a doctor’s office or an urgent care center. If you develop a problem that needs to be treated quickly, but it is not life threatening or risking disability, go to an urgent care clinic.
- Qualified Medical Expenses. Use your HSA to pay for qualified medical expenses without paying taxes. Qualified medical expenses include the costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for medical services rendered by physicians, surgeons, dentists and other medical practitioners. They also include the costs of equipment, supplies and diagnostic devices needed for these purposes. Like preventive care, there can sometimes be uncertainty surrounding what is an allowable qualified medical expense. Specific qualified medical expenses are approved by the IRS, and a list of them can be found here.
HDHPs and HSAs are not the ideal health coverage plan for everyone. However, for many people, HDHPs are a great way to avoid paying for superfluous coverage and HSAs are an excellent vehicle for stockpiling tax-free money to use on future health care needs.
With January 2015 upon us, the employer mandate is now in effect for employer groups with more than 100 lives. Another excise tax that can be imposed on any employer (regardless of the employer size) is the 4980D excise tax. This excise tax can be imposed upon any employer that offers a group health plan that fails to comply with a list of ACA mandated coverage requirements. Not only does this excise tax effect all employer groups, the tax itself is onerous. 4980D of the Internal Revenue Code levies an excise tax of $100 per affected individual, per day as long as the employer’s plan is not meeting the list of requirements. In simple terms, this could mean a tax of up to $36,500 per affected individual of any employer. For a group with 25 employer lives, this tax could be $438,000 per year if the problem persisted for the year, for 125 employee lives it could potentially be $4,562,500. As you can see, this tax could have a major impact on any business that is not compliant.