The Affordable Care Act - AKA "Obamacare"

The Affordable Care Act (ACA) requires all U.S. residents to obtain health care insurance by January 1, 2014 or face possible penalties. You must (a) maintain existing health insurance coverage which meets ACA standards, or (b) buy a plan that meets ACA standards, or (c) pay a tax for failure to have the required coverage. The penalties help pay for health insurance for those who can’t afford it. The IRS currently cannot make you pay the penalties, they can only reduce your tax refunds by the amount of the penalty (hence many people are reducing the amount they have withheld from their payroll checks).

Who is not subject to this law? Individuals whose income is low enough ($10,150 for single or married filing separately, $20,300 for married filing jointly, $13,050 for head of household) and hence are not required to file a tax return, people in prison, and those in the U.S. illegally.

How much is the penalty if I don’t have health insurance? For 2014, the penalty is the greater of $95 per person or 1% of your income in excess of the filing thresholds listed above (excess income). In 2015 the penalty is the greater of $325 per person or 2% of excess income. In 2016 the penalty is the greater of $695 per person or 2.5% of excess income. Children are penalized at 50% of the adult rate ($47.50 per person) but there is a maximum penalty for each year: $285 (3 adults x $95) for 2014; $975 for 2015; and $2,085 for 2016. An example may help: Jose and Maria earn $50,000 in 2014, and have one child. Their per person penalty would be $237.50 (2 x $95 + 1 x $47.50). Their $50,000 of wages exceeds the $20,300 filing threshold, so they would owe the 1% penalty on $29,700, or $297 penalty. The greater of $237.50 or $297 is $297, but the maximum penalty is $285 for 2014.

What if I only had health insurance coverage for part of the year? If you had no coverage for less than three consecutive months, you will not be penalized. If Jose and Maria (example above) had no coverage for 8 months their penalty would be $190 ($285 x 8/12).

What are the subsidies and premium credits? How do they work? Low to middle income Americans are eligible for tax credits (subsidies) that can reduce the cost of required health insurance if you earn between 139%-400% of the federal poverty level. The larger your household, the more you are allowed to make before you exceed 400% of poverty level. For 1 person, the 400% limit is $45,960/yr, for a family of 6 people it is $126,000/yr. The credit can be paid directly to the insurance company to reduce the cost of your health insurance, or claimed as a refundable credit on your tax return. The tax credit is only available if you buy health insurance through the market (does not apply to insurance through an employer). If your tax return income is higher than reported when you applied for premium assistance, or your family size changed during the year, you may get a smaller tax refund, or may have to repay some of the reduction in your health insurance premiums when you file your tax return. If you went through Covered California to get health insurance coverage, you should always notify them of changes to family size or income levels within 30 days of the change, since the information may affect the amount of premium assistance you receive.

How is the government going to collect money to pay for this program? The government passed new taxes to pay for assistance to lower income people. (A) Taxpayers earning more than $200,000 per year will pay an extra 9/10% of medicare tax on wages or self-employed income over $200,000. (B) There is an additional 3.8% medicare tax on “net investment income” (interest or dividends earned, rental income, income from trusts and estates, capital gains, royalties, annuities, a business in which you are not an active participant) if your income exceeds a certain amount ($250,000 married filing jointly - $125,000 married filing separate - $200,000 single or head of household). Gains on the sale of a personal residence are subject to this additional tax only if the gain exceeds $250,000 for single or $500,000 married filing jointly.

Are employers required to provide health insurance coverage for their employees? Employers with more than 50 full-time equivalent employees are required to provide health insurance coverage to their full-time employees, and are penalized if they do not comply ($2,000 per employee penalty, after 30 employee exemption).

Employers with less than 50 employees are not required to furnish health insurance, and employers with less than 25 employees can receive a tax credit for providing coverage.