ObamaCare ACA Tax Penalty for 2015 & 2016

[Suburban Gal]

I was able to avoid the tax penalty the first year. I claimed a financial hardship exception combined with the fact I already had around $3,000 worth of medical and dental debt from the year prior to it being enacted. It's fairly easy to get an exemption and most people who apply for one actually get it.

That said, this is stupid. Utterly stupid.

This whole thing is flawed and does more harm than good.

 

[ameneses54]

October 6, 2015

Under the Affordable Care Act, most Americans are required to minimum essential coverage health insurance. When you file your taxes in April, you'll have to report whether or not you enrolled by the deadline.

To avoid a tax penalty for 2015, the enrollment deadline for most people was February 15, 2015. For 2016, you must get covered by January 31, 2016.

If you don't get "minimum essential coverage" and you don't qualify for an exemption, you'll have to pay a penalty when you file your tax return. The official name for this penalty is the "individual shared responsibility payment".

Calculating the Obamacare Tax Penalty

For 2015, the penalty for going without health insurance is $325 per adult plus $162.50 per child (up to a maximum of $975 per family) or 2% of annual household income, whichever is greater. You'll make this payment when you file your taxes in April 2016.

For 2016, the fee will jump to $695 per adult plus $347.50 per child (with a maximum of $2,085) or 2.5% of family income, whichever is greater. The fee will continue to increase each year until you get coverage.

For purposes of determining the penalty, "income" is defined as what your household earns in excess of the income-tax filing threshold. For 2015, the threshold is $10,300 for an individual and $20,600 for married couples filing jointly.

For Complete Information, Visit: Individual Shared Responsibility Provision

ac

Penalties are getting stiffer every year. As far as I see it, people are more incentivized to enroll and that means more clients.

 

[hamben]

Penalties are going up however most americans will never owe a tax. If you dont qualify for subsidies the premiums are so high that most of the population will be exempt because of the 8.05% affordability rules . Sadly the tax prepares are unaware of how to figure if affordable coverage was even available .

Let's look at a Illinois zip code for a 40 year old couple withn2 kids. 60290

Cheapest plan bcbs is premium is 508 a month. 508. Divided by 8.05% = 6310 x12 = $75,726 in income before the family would owe a tax penalty ...
If premiums rise by 20% like everyone is saying then the premiums will be around $600 a month which will jump the income limit up to $89,000 before the family would owe a tax penalty.

This whole law is insane and the tax penalties are impossible to figure because there is no way to go back and figure what the cheapest plan available was the previous year when you file your tax return.

 

[somarco]

people are more incentivized to enroll

2.5% of income vs 9% for "affordable" health insurance.

The pain is greater when buying insurance.

 

[Ann H]

Penalties are going up however most americans will never owe a tax. If you dont qualify for subsidies the premiums are so high that most of the population will be exempt because of the 8.05% affordability rules . Sadly the tax prepares are unaware of how to figure if affordable coverage was even available .

Let's look at a Illinois zip code for a 40 year old couple withn2 kids. 60290

Cheapest plan bcbs is premium is 508 a month. 508. Divided by 8.05% = 6310 x12 = $75,726 in income before the family would owe a tax penalty ...
If premiums rise by 20% like everyone is saying then the premiums will be around $600 a month which will jump the income limit up to $89,000 before the family would owe a tax penalty.

This whole law is insane and the tax penalties are impossible to figure because there is no way to go back and figure what the cheapest plan available was the previous year when you file your tax return.

Hamben is absolutely correct. A huge number of people will never feel a tax penalty. Furthermore, the MAGI income from which the tax penalty is calculated is different than MAGI for the subsidy calculation. For the penalty, you do NOT add back the non-taxed portion of Social Security benefits, and you also subtract the tax-filing threshold.

The tax-filing threshold is generally $10,150 for singles and $20,300 for families for tax year 2014. (It is more for over age 65, and it is different for other tax filing statuses.) So, add $20,300 to Hamben's figures above, and you find that the family in his example is not penalized until their income is above $96,000 this year and about $109,000 if premiums increase 20% next year.

Furthermore, the tax penalty isn't as big of a bite as is expected. Let's say that the family in his example earns $150,000. Subtract the $20,000 tax-filing threshold, and calculate 2.5% of $130,000, and you have a penalty of $3,250. The lowest cost Bronze plan in his example costs about $6,000.

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This whole law is insane and the tax penalties are impossible to figure because there is no way to go back and figure what the cheapest plan available was the previous year when you file your tax return.

Hamben, there is a tool for finding the lowest cost bronze plan for 2014. It is found here: https://www.healthcare.gov/taxes/tools/bronze/ This tool will also take you to the SLCSP, so you can figure what your subsidy would have been, and therefore use the NET premium for the 8.05% unaffordability test.

 

[hamben]

Exactly Ann,

What we will see as these premiums become more and more outrageous . Healthy People will move to short term plans or other alternative non ACA plans to cover there families Because they will be exempt from the tax ?
The sick or people who can not qualify for the underwritten plans will utilize the ACA compliant plans. This puts us right back to where we started with adverse selection and state high risk pools. Premiums will sky rocket which will exempt more people from the tax. It's never ending
Hopefully one day our politicians will understand that insurance is cheap.. The health care delivery system is expensive ...

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Hamben is absolutely correct. A huge number of people will never feel a tax penalty. Furthermore, the MAGI income from which the tax penalty is calculated is different than MAGI for the subsidy calculation. For the penalty, you do NOT add back the non-taxed portion of Social Security benefits, and you also subtract the tax-filing threshold.

The tax-filing threshold is generally $10,150 for singles and $20,300 for families for tax year 2014. (It is more for over age 65, and it is different for other tax filing statuses.) So, add $20,300 to Hamben's figures above, and you find that the family in his example is not penalized until their income is above $96,000 this year and about $109,000 if premiums increase 20% next year.

Furthermore, the tax penalty isn't as big of a bite as is expected. Let's say that the family in his example earns $150,000. Subtract the $20,000 tax-filing threshold, and calculate 2.5% of $130,000, and you have a penalty of $3,250. The lowest cost Bronze plan in his example costs about $6,000.

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Hamben, there is a tool for finding the lowest cost bronze plan for 2014. It is found s: https://www.healthcare.gov/taxes/tools/bronze/ This tool will also take you to the SLCSP, so you can figure what your subsidy would have been, and therefore use the NET premium for the 8.05% unaffordability test.

Thanks for the link Ann, I stated there was no way to know because all the tax preparers I talked to use software supplied to them and the software they use does not figure in the affordability . So unless the clients are aware they will not owe the tax they are being charged the tax. I have had to correct several tax preparers when some of my clients that had short term insurance got charged the tax.

 

[Ann H]

You are right, Hamben. As premiums spike, many people will be looking for alternatives.

By the way, I made a mistake above by applying one rule to a different concept. I quoted the MAGI rules for the penalty, but applied it to the 8.05% exemption. The MAGI rules for the 8.05% exemption does not allow you to subtract the tax-filing threshold.

Here is cheat sheet that I designed to remind me of the MAGI rules. Please note that this cheat sheet doesn't include MAGI rules for Medicaid, which are also different.

Modified Adjusted Gross Income (MAGI) is defined differently for different parts of the law.

For the Subsidy (Advance Premium Tax Credit):
Household income
AGI (line 37 of the Federal Form 1040)
Plus foreign income exclusion (under Section 911)
Plus tax exempt interest (line 8b)
Plus the non-taxable portion of Social Security Benefits (line 20a minus 20b)
http://www.irs.gov/pub/irs-pdf/p5187.pdf
http://www.irs.gov/Affordable-Care-...estions-and-Answers-on-the-Premium-Tax-Credit


For the Penalty (Individual Shared Responsibility Payment):
Household income
AGI (line 37)
Plus foreign income exclusion (under Section 911)
Plus tax exempt interest (line 8b)
Less the tax-filing threshold (generally $10,150 for singles and $20,300 for families for tax year 2014, but it is more for over age 65, and different for other tax filing statuses.)
http://www.irs.gov/pub/irs-utl/21-Individual Shared Responsibility.pdf


For the Affordability Exemption to the Penalty (the 8.05% unaffordability bar):
Household income
AGI (line 37)
Plus foreign income exclusion (under Section 911)
Plus tax exempt interest
http://www.irs.gov/pub/irs-dft/i8965--dft.pdf


For Employer Sponsored coverage, as it pertains to a person wishing to get a subsidy (the 9.56% unaffordability bar):
Household income
AGI (line 37) for the household
Plus foreign income exclusion (under Section 911)
Plus tax exempt interest (line 8b)
Plus the non-taxable portion of Social Security Benefits (line 20a minus 20b
This applies to self-only premium
http://www.irs.gov/Affordable-Care-...estions-and-Answers-on-the-Premium-Tax-Credit


For Employer Sponsored coverage, as it pertains to an Employer wishing to avoid an Employer Mandate Penalty (another 9.56% or 9.5% unaffordability rule):
If no Safe Harbor is used, then it is
9.5% in 2014, 9.56% in 2015, 9.66% in 2016
AGI (line 37) for the household
Plus foreign income exclusion under Section 911
Plus tax exempt interest (line 8b)
Plus the non-taxable portion of Social Security Benefits (line 20a minus 20b)
http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf

If using the Safe Harbor, then it is
9.5% of W2 Box 1 income

Both of these apply to self-only premium​

 

[Suburban Gal]

Penalties are getting stiffer every year. As far as I see it, people are more incentivized to enroll and that means more clients.

I disagree. Penalties will always be cheaper.

That said, the cost of the plans are so ridiculously expensive that a person is better off without coverage. Because plans are so damn expensive in the first place, you can't even really use what you have so you're basically throwing money away when it could be used for other, more important things in life.

I expect to pay Land of Lincoln Health (LLH) $2,933.52 this year. (I probably could've taken a subsidy, but given my current income as of late what they'd give me to help cover the cost of my healthcare is a joke (In other words, it really wouldn't help me afford it anyhow) so I bit the bullet and paid entirely myself.) I haven't really used the insurance because I can't afford the co-pays and my share of the costs as a result of using it to begin with. I have bills, like car insurance, for example, that I've been struggling to pay. I also have a lot of debt that I've been trying to pay down and off. I still owe $3,000+
dental work I had done in the year prior to Obamacare taking affect.

And let's be honest here... it's not only the cost of the insurance itself that's the problem, but it's also the costs to make use of the healthcare that's not helping. Something needs to be done about the costs of office visits, exams, vaccinations, procedures, surgeries, and prescriptions. Everything a person has done to keep them healthy or address their problems and make them whole or well again.

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If you dont qualify for subsidies the premiums are so high that most of the population will be exempt because of the 8.05% affordability rules.

Exactly. You took the words right out of my mouth.

 

[Ann H]

I thought I would update the chart above, with the figures for 2016. Remember, when you file your tax return for 2015 tax year, you still use the 2015 figures. These new 2016 amounts start 1/1/2016 and are applicable when you file your 2016 tax return in 2017.

Here is cheat sheet that I designed to remind me of the MAGI rules. Please note that this cheat sheet doesn't include MAGI rules for Medicaid, which are also different.

Modified Adjusted Gross Income (MAGI) is defined differently for different parts of the law.

For the Subsidy (Advance Premium Tax Credit):
Household income
AGI (line 37 of the Federal Form 1040)
Plus foreign income exclusion (under Section 911)
Plus tax exempt interest (line 8b)
Plus the non-taxable portion of Social Security Benefits (line 20a minus 20b)
http://www.irs.gov/pub/irs-pdf/p5187.pdf
http://www.irs.gov/Affordable-Care-...estions-and-Answers-on-the-Premium-Tax-Credit


For the Penalty (Individual Shared Responsibility Payment):
Household income
AGI (line 37)
Plus foreign income exclusion (under Section 911)
Plus tax exempt interest (line 8b)
Less the tax-filing threshold (generally $10,150 for singles and $20,300 for families for tax year 2014, but it is more for over age 65, and different for other tax filing statuses.)
http://www.irs.gov/pub/irs-utl/21-Individual Shared Responsibility.pdf


For the Affordability Exemption to the Penalty (the 8% unaffordability bar in 2014, 8.05% in 2015 and 8.13% in 2016):
Household income
AGI (line 37)
Plus foreign income exclusion (under Section 911)
Plus tax exempt interest
http://www.irs.gov/pub/irs-dft/i8965--dft.pdf


For Employer Sponsored coverage, as it pertains to a person wishing to get a subsidy (the unaffordability bar of 9.5% in 2014, 9.56% in 2015 and 9.66% in 2016):
Household income
AGI (line 37) for the household
Plus foreign income exclusion (under Section 911)
Plus tax exempt interest (line 8b)
Plus the non-taxable portion of Social Security Benefits (line 20a minus 20b
This applies to self-only premium
http://www.irs.gov/Affordable-Care-...estions-and-Answers-on-the-Premium-Tax-Credit


For Employer Sponsored coverage, as it pertains to an Employer wishing to avoid an Employer Mandate Penalty (another 9.56% 2015 and 9.66% 2016 unaffordability rule, or 9.5% unaffordability rule):
If no Safe Harbor is used, then it is
9.5% in 2014, 9.56% in 2015, 9.66% in 2016
AGI (line 37) for the household
Plus foreign income exclusion under Section 911
Plus tax exempt interest (line 8b)
Plus the non-taxable portion of Social Security Benefits (line 20a minus 20b)
http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf

If using the Safe Harbor, then it is
9.5% of W2 Box 1 income in 2015 and 2016

Both of these apply to self-only premium​

 

[AllenChicago]

January 25, 2016

The Supreme Court ruled that paying the Individual Responsibility Payment (Consumer Penalty-Tax) is OPTIONAL.

Does that still hold, or did the King over-rule the Supremes?