The two key provisions of the Affordable Care Act (ACA) that affect individuals first became effective in 2014: 1) the shared responsibility payments and the 2) premium tax credit
Shared Responsibility Payments: Starting in 2014, every individual and each member of his or her family must have qualifying health insurance (called minimum essential coverage – MEC) or make a shared responsibility payment when filing his/her federal income tax return.(Individuals with a coverage exemption are not required to make the payment – several exemptions exist including low income, hardship, exempt groups – ask your accountant).
Calculating the individual share responsibility payment and reporting it on your tax return:
If the taxpayer, his/her spouse or any of his/her dependents didn’t have MEC and didn’t have a coverage exemption for any month in 2014, an individual shared responsibility payment must be computed and reported on their tax return.
For 2014 the annual payment amount is the greater of: 1) One percent (1%) of your household income that is above the tax return filing threshold for your filing status, OR 2) 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 which is $2,448 per individual ($204 per month per individual), but $12,240 for a family with five or more members ($1,020 per month for a family with five or more members) for 2014.
Example: Married couple with 2 children, $70,000 income
Michael and Julia are married and have two children under 18. They do not have minimum essential coverage for any family member for any month during 2014 and no one in the family qualifies for an exemption. For 2014, their household income is $70,000 and their filing threshold is $20,300.
- To determine their payment using the income formula, subtract $20,300 (filing threshold) from $70,000 (2014 household income). The result is $49,700. One percent of $49,700 equals $497.
- Michael and Julia’s flat dollar amount is $285, or $95 per adult and $47.50 per child.
The family’s annual national average premium for bronze level coverage for 2014 is $9,792 ($2,448 x 4). Because $497 is greater than $285 and is less than $9,792, their shared responsibility payment is $497 for 2014, or $41.41 per month for each month the family is uninsured (1/12 of $497= $41.41).
Michael and Julia will make their shared responsibility payment for the months they and their children were uninsured when they file their 2014 income tax return, which is due in April 2015.
Premium Tax Credit: Also starting in 2014, individuals who get their health insurance coverage through the Marketplace may be eligible for the premium tax credit. Generally, individuals are eligible for the credit they are meet all of the following:
- Buy health insurance through the Marketplace
- Are eligible for coverage through an employer or government plant
- Are within certain income limits.
- Do not file MFS (married filing separately) – (exceptions apply for victims of abuse and the taxpayers considered unmarried)
- Cannot be claimed as a dependent by another person
Advance payments of the tax credit are available to pay monthly premiums directly to the insurance company – the credit amount is computed based on information provided on the enrollee’s projected income and family composition for the year. The tax credit is then adjusted accordingly on the enrollee’s tax return for any prepayments received.