ObamaCare ACA Tax Penalty for 2015 & 2016
- Thread starter AllenChicago
- Start date
FYI... If someone hasn't had 2016 health insurance, purchases a Short Term Health Insurance plan that goes into effect prior to April 1st, they avoid the penalty-tax because (according to IRS guidelines) they've purchased Minimum Essential Coverage before the start of the 4th of month of 2016.
See Q&A #5 and #20 at: https://www.irs.gov/Affordable-Care...he-Individual-Shared-Responsibility-Provision
Allen, I agree that you are a consistent source of very valuable information. You read a LOT, and share a wealth of knowledge on this forum. I'm not bothered by the fact that you might forget something once in a while. I certainly do.
Short-term health insurance is not subject to the ACA, simply because it has a limited duration of less than 12 months. If it went more than 12 months, it would have to comply with ACA.
The fact that it has a limited duration of less than 12 months means it does not need to comply with ACA reforms. It can have a pre-existing condition waiting period. It can be underwritten. It can exclude one or more of the 10 essential health benefits. Plans that do not comply with ACA are not considered MEC. As such, it does not get you out of an individual responsibility penalty.
Below is a good article that explains this:
http://www.rwjf.org/content/dam/farm/reports/issue_briefs/2015/rwjf417669
You will notice in this article that there are many "excepted benefits" that also do not have to comply with ACA, and do not get you out of a penalty.
So, this leads to another issue that I've said over and over. An insurance company could design a short-term plan (outside of ACA), that is much better than the short-term plans of old. They could eliminate the pre-ex wait, or maybe at least give credit for prior coverage like the HIPAA rules did. They could beef up the benefits and still keep the premium less than ACA-compliant premiums. In other words, they could be like many PPO plans of pre-ACA. If that kind of plan existed, there would be many clients who would purchase it instead of ACA.
Sure, it does not get you out of the IRS penalty, however, there are so many exemptions from that penalty already. Turbo Tax reported a high number of people who are exempt, just based on the "unaffordability" exemption alone. That exemption says you do not owe a penalty if the lowest cost bronze plan would cost you more than 8.13% of your household MAGI income. (It was 8% in 2014, 8.05% in 2015 and 8.13% in 2016.) Furthermore, MAGI for this exemption does not include the non-taxed portion of social security benefits like MAGI for the subsidy does.
Therefore, a lot of people qualify for this unaffordability exemption. As premiums spike, it's likely that a lot more people would qualify for the exemption. For instance, a couple making $70,000 is over 400% of FPL and won't get a subsidy. The penalty is about $1250 (2.5% of MAGI income less the tax filing threshold of about $20,000). If the lowest cost bronze costs this couple more than $474 per month, they get the unaffordability exemption from the ACA. A lot of couples would qualify for that exemption.
People who have an exemption from the penalty, and are healthy enough for underwriting may want a good short-term plan instead of ACA-compliant, especially if carriers beefed up their short-term plans from the horrors of yesteryear. After all, they are underwritten. Carriers can afford to give pre-ex credit for prior coverage and such.
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I think Ann should run for president! Great explanation and good idea on alternatives to ACA coverage.
- Thread starter
- #56
- 8,448
Ann, you're wonderful! I agree with CadyLou. If Hillary had your optimistic personality, compassion, method of communicating, and just a few of your brain cells, I'd vote for her in a heartbeat!
I fully understand the role that STM plays in the Obamacare theater of horrors, Ann. I merely tell clients to answer, or have their accountants answer, Line #61 on IRS form 1040 appropriately, using the IRS form 1040 instruction booklet as the guide.
Aside from the elimination of the Pre-X waiting period, your ideas for a beefed-up Short Term Medical plan would make a lot of sense today, just like they did when we first realized how expensive Obamacare QHPlans were when rolled out for 2014.
I think our next President will make some significant changes that will hopefully make this entire thread nothing more than historical discussions to look back on fondly, or to curse at...depending on what the ACA did to benefit your insurance business, or to screw up your insurance business.
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STM does not make anyone compliant and they would still be ASKED to makes the "shared resposibility payment".
I emphasize asked because there are no consequences for not paying the shared resposibility payment. The IRS will probably take it out of a refund if you get one. But if you don't. They are legally forbidden from threatening any types legal action, garnishing wages, or putting liens on property.
I don't offer STM. I think they are worthless, but I do offer a long term plan with MM coverage that doesnt meet all EHBs. (Wellness, psychiatric, and drug rehab) which my clients don't need and certainly don't want to pay extra for.
Long story short; file your taxes in a way that you minimize your return. Don't pay the shared responsibility payment because the worst thing the IRS can do is send a few letters "requesting" that you pay it.
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Ann h, there are plans like that. You just have to know which company to write for.
I emphasize asked because there are no consequences for not paying the shared resposibility payment. The IRS will probably take it out of a refund if you get one. But if you don't. They are legally forbidden from threatening any types legal action, garnishing wages, or putting liens on property.
I don't offer STM. I think they are worthless, but I do offer a long term plan with MM coverage that doesnt meet all EHBs. (Wellness, psychiatric, and drug rehab) which my clients don't need and certainly don't want to pay extra for.
Long story short; file your taxes in a way that you minimize your return. Don't pay the shared responsibility payment because the worst thing the IRS can do is send a few letters "requesting" that you pay it.
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Ann h, there are plans like that. You just have to know which company to write for.
Although the IRS cannot file criminal charges nor use liens or levies to collect this debt, most people think the only way the IRS can collect is if you are due a refund. Not so. If you are ever due a tax credit (like earned income credit, or the homeowner's credit, etc.) they can take it. It still is a debt (plus penalty and interest), which lenders who access tax returns can know about (like mortgage companies, small business loans etc.) They can require you to have your taxes up to date before proceeding with the loan. There are many ways that nonpayment of this tax can come back to bite you (with penalty and interest).
- Thread starter
- #59
- 8,448
Thank-you Ann. I didn't know that lenders can see the unpaid Individual Responsibility Payment(s) on the applicant's credit report.
It's too bad the insurance companies have shut out agents. The would have been a good marketing tool targeted to the uninsured for 2017 O.E..
It's not necessarily the credit report. Lenders often ask you to sign an authorization allowing them to ask the IRS for copies of several years of tax returns. Also, their application and/or underwriting department usually asks if you have an unpaid balance to the IRS, or any other taxing authority (such as state and local).
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Bottom line is that I'm not willing to tell a client to forge ahead with an alternative product while thinking they will never pay the penalty/tax, like the poster cowgoesMoO suggested when he said:
In other threads, he told us that he sells USHealth Advisors. If it's so good, why should the client be led to believe they won't pay a penalty? An agent should tell the client straight up that there is a penalty, and they will probably end up paying it, and here's an alternative policy. Lots of people are eligible for exemptions from the penalty, especially the unaffordable exemption, and it's not unethical to explain that to them. However exemption from the penalty is different than tax avoidance. If I can't sell my product without suggesting that they avoid paying legitimate taxes/penalties, then something is wrong!
