How does Health Insurance Impact your Tax this Year?

How does Health Insurance Impact your Tax this Year

 

The ’Individual Mandate’, one of the Affordable Care Act reforms, has been the hot topic in the US healthcare space lately. This policy has made buying health insurance mandatory for those people who are uninsured. The ultimate goal of this policy is to promote a healthier nation; however there is downside to it. American citizens were subjected to a tax penalty this year if they did not have a private, employer-sponsored or public health insurance for at least nine months in 2014. Nevertheless, there are certain exemptions that will keep most of them from facing this penalty. Some of them include:

  • American citizens who were unable to afford health insurance despite the provision of various subsidies.
  • Immigrants who are undocumented would qualify for exemption.
  • If people have a very low income that falls below the tax filing threshold, then they are exempt from this penalty.
  • American citizens who hold residency in foreign countries or live there, are exempted from the tax penalty.

So, what happens to the people who were not insured in 2014 and do not qualify for the penalty exemption? They will have to face the following consequences:

  • The individual has to pay 1% of his household income. Else, there will be a flat penalty of $95 per adult and $47.50 per child. For a family as such, the tax penalty is calculated as $285.
  • As per Turbo Tax, the fee is expected to increase each year. For 2015, the tax penalty would be $325 per adult and $975 per family. Else, there will be a 2% cut from the total household income.
  • The penalty will be paid along with the income taxes every month. In case an individual is qualified for a tax refund, then the penalty charge will be subtracted from that amount.
  • Even employers are subjected to a penalty in 2015 if they have 50 or more workers on board, but do not provide health insurance coverage.

Forms:

In order to report health insurance on taxes, IRS has created various new forms:

  • W-2 forms are used to report the amount paid by employers for employer-sponsored health insurance plans. This amount in no way, affects the insured employee’s tax liability. At the same time, the taxable income will also not have any changes due to the employer’s contribution to the health insurance.
  • 1095-A is for those who bought health plans through healthcare exchange marketplace.
  • 1095-B and 1095-C are not required for reporting.

It is highly advisable that people follow these rules so that they are exempted from the tax penalty.