Care Act and You
Patient Protection and Affordable Care Act of 2010 resulted in
several changes to the U.S. tax code that affect individuals
purchasing health care insurance through the health care
exchanges. Let's take a closer look at what it all means for
Individual Shared Responsibility
Starting January 2014, United States citizens and legal
residents must obtain minimum essential health care coverage
for themselves and their dependents, have an exemption from
coverage, or make a payment when filing a 2014 tax return in
2015. The Individual Mandate is also known as the Individual
Shared Responsibility Payment.
The payment varies and is based on income level. In 2014,
basic penalty for an individual (no dependents) is
$95 or 1
percent of your yearly income (whichever is higher), with
substantial increases in subsequent years. For example, in
2015, the penalty is $325 or approximately 2 percent of
income, whichever is higher. In 2016, it increases to $695 or
2.5 percent of income (again, whichever is higher), indexed
for inflation thereafter.
The individual shared responsibility payment is capped at the
cost of the national average premium for the bronze level
health plan available through the Health Insurance Marketplace
in 2014. You will make the payment when you file your 2014
federal income tax return in 2015.
For example, a single adult under age 65 with household income
less than $19,650 (but more than $10,150) would pay the $95
flat rate. However, a single adult under age 65 with household
income greater than $19,650 would pay an annual payment based
on the 1 percent rate.
For any month in 2014 that you or any of your dependents don't
maintain coverage and don't qualify for an exemption, you will
need to make an individual shared responsibility payment with
your 2014 tax return filed in 2015.
However, if you went without coverage for less than three
consecutive months during the year you may qualify for the
short coverage gap exemption and will not have to make a
payment for those months. If you have more than one short
coverage gap during a year, the short coverage gap exemption
only applies to the first.
Most people already have qualifying health care coverage and
will not need to do anything more than maintain that coverage
throughout 2014. Self-insured ERISA policies used by larger
employers, as well as Medicare, Medicaid, and CHIP (Children's
Health Insurance Program), and all of the health insurance
plans offered by the exchanges, fall under the category of
minimum essential health care coverage.
Qualifying coverage does not include coverage that may provide
limited benefits, such as coverage only for vision care or
dental care, workers' compensation, or coverage that only
covers a specific disease or condition.
Note: Certain individuals are exempt
from the tax and include: (1) people with religious
objections; (2) American Indians with coverage through
the Indian Health Service; (3) undocumented immigrants;
(4) those without coverage for less than three months;
(5) those serving prison sentences; (6) those for whom
the lowest-cost plan option exceeds 8 percent of annual
income; and (7) those with incomes below the tax filing
threshold who do not file a tax return($10,000 for
singles and $20,000 for couples under 65 in 2013).
A special hardship exemption applies to individuals who
purchase their insurance through the Health Insurance
Marketplace during the initial enrollment period for 2014 but
due to the enrollment process have a coverage gap at the
beginning of 2014.
Effective in 2014, certain taxpayers will be able to use a
refundable tax credit to offset the cost of health insurance
premiums so that their insurance premium payments do not
exceed a specific percentage of their income. Qualified
individuals are those with incomes between 133 percent and 400
percent of the federal poverty level. A sliding scale based on
family size will be used to determine the amount of the
credit. In addition, married taxpayers must file joint returns
If you purchased coverage through the Health Insurance
Marketplace (sometimes referred to as health care exchanges),
you may be eligible for the premium tax credit. This
refundable tax credit helps people with moderate incomes
afford health insurance coverage they purchase through the
The premium tax credit can help make purchasing health
insurance coverage more affordable for people with moderate
incomes. To be eligible for the credit, you generally need
to satisfy three rules.
you need to get your health insurance coverage through the
Health Insurance Marketplace. The open enrollment period to
purchase health insurance coverage for 2014 through the Health
Insurance Marketplace runs from October 1, 2013 through March
you need to have household income between one and four times
the federal poverty line. For a family of four for tax year
2014, that means income from $23,550 to $94,200.
you can't be eligible for other coverage, such as Medicare,
Medicaid, or sufficiently generous employer-sponsored
If you are eligible for the credit, you can choose to "get it
now" by having some or all of the credit paid in advance.
These payments go directly to your insurance company to lower
what you pay out-of-pocket for your monthly premiums during
2014. Or you "get it later" by waiting to get the credit when
you file your 2014 tax return in 2015.
If you wait to get the credit, it will either increase your
refund or lower your balance due. Your 2014 tax return will
ask if you had insurance coverage or qualified for an
exemption. If not, you may owe a shared responsibility payment
when you file in 2015.
If you choose to receive the credit in advance, changes in
your income or family size will affect the credit that you are
eligible to receive. If the credit on your tax return you file
in 2015 does not match the amount you have received in
advance, you will have to repay any excess advance payment, or
you may get a larger refund if you are entitled to more.
It is important to notify the Health Insurance Marketplace
about changes in your income or family size as they happen
during 2014 because these changes may affect your premium tax
Changes in circumstances that you should report to the Health
Insurance Marketplace include, but are not limited to:
- an increase or decrease in your income
- marriage or divorce
- the birth or adoption of a child
- starting a job with health insurance
- gaining or losing your eligibility for other health care coverage
- changing your residence
Reporting the changes will help
you avoid getting too much or too little advance payment of
the premium tax credit. Getting too much means you may owe
additional money or get a smaller refund when you file your
taxes. Getting too little could mean missing out on premium
assistance to reduce your monthly premiums.
Repayments of excess premium assistance may be limited to an
amount between $400 and $2,500 depending on your income and
filing status. However, if advance payment of the premium tax
credit was made but your income for the year turns out to be
too high to receive the premium tax credit, you will have to
repay all of the payments that were made on your behalf, with
no limitation. Therefore, it is important that you report
changes in circumstances that may have occurred since you
signed up for your plan.
Changes in circumstances also may qualify you for a special
enrollment period to change or get insurance through the
Health Insurance Marketplace. In most cases, if you qualify
for the special enrollment period, you will have sixty days to
enroll following the change in circumstances.
Don't hesitate to call us at (301) 657-8080 if you need
assistance navigating the complexities of the Affordable Care
Act. We're here for you!
Financial Services at Sullivan & Company, CPAs
Sullivan leads our Financial Services Division and is here to
help you navigate your financial future. As an Investment
Advisor Representative, he is able to provide an
independent opinion on the investments you already own or
are considering buying.
We can structure a portfolio
based on your risk tolerance or we can help you decide how
to invest in your company 401(k) plan. We work with each
client to identify their concerns and to provide solutions
according to their situation.
is also experienced in company retirement plans. If you own
a business that does not have a plan; we can discuss your
options and set up a plan that fits your company.
If your business already has a
plan; we offer a free evaluation of the plan to ensure that
it is up to date and working well for you and your
Our goal is to provide personal, unbiased and independent
advice to help you make well-informed decisions about your
financial life and investments.
Contact Paul Sullivan or Jordana Para to set up a free initial
consultation (301) 657-8080.
And as always if you have any questions about accounting or
investments and how they effect you or your business, please give
us a call. We
can help guide you in the right direction.
Remember you can call our offices if you have any
questions about these or any other accounting, tax,
financial planning or insurance related issues, at
Regards, Paul Sullivan, CPA
President, Sullivan & Company