For Starters Maybe You’ll Get A Bigger Tax Bill Next Year
As most people know, the Affordable Care Act says that all Americans must either have health coverage or pay a penalty for not having health insurance. Heres how thats going to work.
When you file your 2014 taxes, you’ll be asked to check a box saying whether or not you had insurance. This year only, the Internal Revenue Service really won’t have a way of checking if you’re lying about having coverage, but remember your legal obligation to be truthful on your return.
If you didn’t have insurance in 2014, you will either have to provide a valid reason why you didn’t have to be covered or pay a fine.
How big is the fine?
You may have heard that the penalty for not having health insurance is only $95 for the year, but thats only for certain people. Heres the full formula. For the 2014 tax year, youll pay the greater of these two numbers: A. 1 percent of your household income above $10,000, up to a maximum of $2,448 per person or B. $95 per adult and $47.50 per child, up to a family maximum of $285.
In 2015 the penalty gets bigger. Its going to be 2 percent of your household income or $325 per adult and $162.50 per child up to a family maximum of $975.
To spare you the trouble of doing the math, the Tax Policy Center has a calculator that will figure your penalty for you. For instance, a family of four with an income of $60,000 would pay a penalty of $285 in 2014 and $650 in 2015.
What if I had insurance for part of the year?
How will the government collect it?
How To Avoid Paying A Penalty For No Health Insurance
The easiest way to avoid paying a penalty for not having health insurance is to enroll in an accepted and credible health plan for your state. The Affordable Care Act, sometimes called Obamacare, specifies anopen enrollment period when people can enroll in plans offered through the federal or state health insurance marketplaces. An open enrollment period is a set time when people can sign up for or change their plans. When you sign up for health insurance during the open enrollment, the insurer must provide you insurance. If you do not sign up during this time, you cannot sign up until the next open enrollment unless you experience certain life events.
In 2021, due to COVID, there was a Special Enrollment Period between Feb. 15 and Jun. 30, according to Cummins. During this time, over 1.5 million Americans signed up for new insurance coverage through healthcare.gov. For 2022, open enrollment begins on Nov. 1, 2021, and ends on Dec. 15, 2021.
Besides plans on the Marketplace, you can during three main periods in the yearthough, in some states, like New York, you can enroll in a supplemental plan year-round:
- Initial enrollment period
- Open enrollment period
- Special enrollment period
What Is Exemption Type G On Form 8965
Exemption Code G covers a few situations:
- The total insurance cost exceeds 8.05 percent of your household income
- Your state didnt expand its Medicaid coverage beyond families with household income below 138 percent of the poverty level
- You or a family member had a hardship that made it impossible to secure coverage
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How Did The Irs Enforce The Individual Mandate In 2018 And Prior Years
The ACA included a penalty, starting in 2014, for people who were uninsured and didnt qualify for an exemption. The penalty amount ratcheted to its highest level in 2016, and remained at that level for 2017 and 2018, although the maximum allowed penalty under the percentage of income calculation has risen each year as average premiums have increased.
Vermont Enacted A Mandate But Opted Not To Impose Any Penalty For Non
Vermont enacted legislation in 2018 to create a state-based individual mandate, but they scheduled it to take effect in 2020, instead of 2019, as the penalty details werent included in the 2018 legislation and were left instead for lawmakers to work out during the 2019 session. But the penalty language was ultimately stripped out of the 2019 legislation and the version that passed did not include any penalty. So although Vermont does technically have an individual mandate as of 2020, there will not be a penalty associated with non-compliance .
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Do I Have To Pay A Penalty For Not Having Health Insurance
There is no federal penalty for not having health insurance since 2019, however, certain states and jurisdictions have enacted their own health insurance mandates. The federal tax penalty for not being enrolled in health insurance was eliminated in 2019 because of changes made by the Trump Administration.
Proof Of Coverage Provided By Your Health Plan
Health insurance plans will provide documentation to clients to prove they have the minimum coverage required by law. When you file your tax return you will have to enter information about your coverage status, or if you were eligible for an exemption, on your tax return. Insurers will provide a notice to you by January 31 that describes your coverage status during the previous year.
Connect for Health Colorado customers can review the Taxes Frequently Asked Questions to learn more about the form they will receive as proof of insurance.
The federal government oversees the enforcement of the mandate. Please contact the Internal Revenue Service for more information.
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Health Insurance: What To Expect When Filing Your Tax Return
Wondering whether you’ll owe a tax penalty for being uninsured? In most states, the answer is no. But if you’re in California, DC, Massachusetts, New Jersey, or Rhode Island, there is a penalty for being uninsured, which is assessed when you file your state tax return. Here’s an overview of how the individual mandate penalty has evolved over time:
How Are The 3 Months Calculated
How the IRS measures insurance gaps is a little odd. If you have coverage for at least one day of a month, that month does not count towards your three-month gap. For example, your ACA coverage ends on January 2 and you dont have coverage at all in February or March. Because you were covered for one day in January, its like you were covered for the whole month, so only February and March count towards the three-month gap.
If you are uninsured from January 2 through February, March, and April, but get coverage for May, you are still held accountable for a penalty for March-April. Many people get confused and think because they got coverage by May, they wont be penalized, but there were still three months where they without coverage. Assuming you are insured for the rest of the year , you will owe ¼ of the annual penalty.
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Health Care Information Forms
Taxpayers who are preparing to file their tax returns may receive multiple health care information forms that they can use to complete their return. The forms are:
Depending upon your specific circumstances, the Health Insurance Marketplace, health coverage providers and certain employers may provide information forms to you to help you accurately report health coverage information for you, your spouse and any dependents when you file your individual income tax return. Health coverage providers, employers and the Marketplace will also file these forms with the IRS.
If you are expecting to receive a Form 1095-A, you should wait to file your income tax return until you receive that form. Some taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their tax return and it is not necessary to wait for Forms 1095-B or 1095-C in order to file. While the information on these forms may assist in preparing a return, they are not required. Individual taxpayers should file their returns as they normally would.
The deadline for the Marketplace to provide Form 1095-A is January 31 of the year following the coverage year.
The IRS has posted a set of questions and answers about the Forms 1095-B and 1095-C. The questions and answers explain who should expect to receive the forms, how they can be used, and how to file with or without the forms.
Everyone In Your Family Must:
Report Minimum Essential Coverage
Many people already have minimum essential coverage. If this applies to you, you’ll simply report your coverage when you file your tax return year. If you and your family members all had minimum essential coverage for each month of the tax year, you will indicate this on your tax return by checking a box on Form 1040. No further action is required.
- Minimum essential coverage includes:
- Most health coverage provided by your employer
- Health insurance purchased through a Health Insurance Marketplace in the area where you live, where you may qualify for financial assistance
- Coverage provided under a government-sponsored program for which you are eligible – including Medicare, most Medicaid, and health care programs for veterans
- Health insurance purchased directly from an insurance company
- Other health coverage that is recognized by the Department of Health & Human Services as minimum essential coverage.
Health coverage providers, the Marketplace, and some employers will issue Form 1095 information documents early in the tax filing season. If you receive these information forms, you should keep them with your tax documents. The forms should not be filed with your tax return.
For any month that you or anyone in your family does not have minimum essential coverage, you will need to claim or report a coverage exemption or make a shared responsibility payment when you file your tax return.
Claim or Report a Coverage Exemption
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What Is An Exemption From The Tax Penalty
The tax penalty is assessed for each month that a person is not covered. It is pro-rated, so that a person who is not covered for only a single month would pay 1/12th of the tax that would be due for the full year. For example, the minimum tax per person for failing to get coverage would be $57.92 per adult and $28.96 per child for each month of 2020.
Then Calculate The Penalty Based On 3 Groups
If at least one employee receives federal subsidies due to the purchase of health insurance through an exchange, an employer may be required to pay a monthly penalty based on the number of Full-Time Employees.
VERY IMPORTANT: When calculating the amount of the penalty, the employer receives a credit of 30 Full-Time Employees. .
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Contact The Experts At New City Insurance
Tax penalties can come as a surprise for people who are not familiar with the 2020 changes to California health insurance coverage. To learn more about the tax penalty for not having health insurance in California or to request a consultation with an insurance professional, contact New City Insurance.
What If I Cant Afford Health Insurance
If you cant afford your employers health insurance or your own policy, find out if you qualify for Federal subsidies.
Certain states will also offer state-run health insurance, so be sure to find out if you can afford one of the plans. Remember, even if there is no individual mandate, it can still offer tax benefits and keep you covered.
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How To Look Up Plan Premiums
1. Open MNsure’s plan comparison tool — on the first page, click the Continue button.
2. Under “Which Coverage Year” select the year for which you are seeking information. Note: if you pick a year prior to the current coverage year, a date picker will appear. Enter the start Date for your exemption.
43. Under “Where do you live” enter the ZIP Code of your residential address. Your county of residence will appear. If there is more than one county for your ZIP code, select your county of residence.
4. Under “Who is in your household and do they need coverage?” enter the following information for each person in your household applying for the exemption:
- Tobacco Use. If you use tobacco, you need to enter your household information two separate times in order to search for the correct premium using the correct Tobacco Use status. To get the lowest cost bronze plan premium: check the box to indicate “Yes” for Tobacco Use. To get the second-lowest cost silver plan premium: leave the checkbox unchecked to indicate “No” for Tobacco Use.
- Leave Native American, and Pregnant? checkboxes unchecked as these cannot be used in this premium calculation.
- Make sure the Needs Coverage checkbox is checked.
5. Skip the financial help section and click Browse Plans button on bottom right.
6. Skip the Tell Us about Your Health Care Needs page and select Skip to View Plans button.
7. Under the “Health Plans” tab, the medical plans available to you will display.
Do I Still Need Health Insurance
While it is your decision to purchase health insurance or not, it is a great peace of mind to have it. While health insurance premiums can be expensive, medical costs can be devastating.
Also, even though the individual mandate is no longer in play, there are still tax benefits to having health insurance.
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What Is The Penalty For Not Having Health Insurance
The national health insurance mandate was not as one-sided as we may have implied. While the mandate established a tax penalty for those without insurance, it also created a special premium tax credit for people with insurance, which served to help lessen the cost of health insurance. It also created provisions to expand Medicare for lower-income families. Congress voted to remove the federally mandated penalty for not having health insurance in 2017 via a law that became effective on January 1, 2019.
Some states, however, have their own insurance marketplaces, and have created their own mandated insurance, using a state tax penalty/tax credit system that is similar to the original federal system. As of early 2021, these states are as follows:
- New Jersey
In addition, the District of Colombia also has its own mandate. New Mexico, Kentucky, Maine, and Virginia are all expected to open their own marketplaces within the next two years, and Maryland, Hawaii, Connecticut, and Pennsylvania have made progress on creating mandatory healthcare law for their residents as well.
Individual Shared Responsibility Provision
Under the Tax Cuts and Jobs Act, the amount of the individual shared responsibility payment is reduced to zero for months beginning after December 31, 2018.
Beginning in tax year 2019, Forms 1040 and 1040-SR will not have the full-year health care coverage or exempt box and Form 8965, Health Coverage Exemptions, will no longer be used. You need not make a shared responsibility payment or file Form 8965, Health Coverage Exemptions, with your tax return if you dont have a minimum essential coverage for part or all of the year.
- Have qualifying health insurance coverage for each month of the year
- Have an exemption from the requirement to have coverage
- Make an individual shared responsibility payment when filing federal income tax return.
Under the Tax Cuts and Jobs Act, taxpayers must continue to report coverage, qualify for an exemption, or pay the individual shared responsibility payment for tax years 2017 and 2018.
Most taxpayers are in the first category and have qualifying health insurance coverage for each month of the year. They will simply check a box on their return to indicate that everyone listed on the front of the return has qualifying health care coverage for the entire year. Some taxpayers will have to file a Form 8965PDF to claim an exemption from the requirement to have health care coverage.
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Why Have An Individual Mandate
These states have an individual mandate for the same reason the ACA originally did. Without an individual mandate, people would only buy insurance if they knew they were going to need it. Most often, this means the elderly and people with pre-existing conditions.
But those who use their health insurance the most are also the most expensive to insure. Before the Affordable Care Act, insurance companies would evaluate all applicants before enrolling them. Based on peoples age and medical history, the insurance companies would then deny them health care coverage, or charge them more for it. But the ACA made that kind of discrimination illegal. And then it took things one step further. An individual mandate is an incentive for everyone to get health insurance, even healthy people. That meant there was now a larger pool of people applying for health insurance. And with more healthy people getting health insurance, health insurance companies could lower premiums for everyone.
In other words, the individual mandate was meant to be one of the of cost-savings and consumer protections we associate with the ACA. It allows more people to be insured at a lesser rate per person. Even though there is no national individual mandate anymore, some states have passed their own mandates to help keep more people insured at lower costs per person. If the mandates help more people get insured, taxpayers in these states will have lower monthly premiums on average.