2015 Obamacare Updates – Health Insurance and tax implications

2014 was a big year for health insurance, as it was the first year that Obamacare came into practice. These new health insurance requirement affected a majority of individuals, the health care industry, and federal personal income taxes. This requirment will be part of our annual tax disclosers for the foreseeable future.

Here are some essential things that have changed.

– The first is that you have to provide health insurance information when you are filing your personal income tax returns. This assits the government in confirm whether you needed to purchase heath insurance. If you where required to purchase it and didn’t you may face penalties if you don’t qualify for one of the available exemptions.

– The penalty is imposed on those who can afford health insurance but choose not to purchase it. In 2015, the penalty starts from $325 for each person in your household and $162.50 for each child under the age of 18. The maximum penalty for each family is $975. The other option is 2% of your annual household income, charged only on the amount of income that is above the tax filing threshold. The higher of the two options is chosen so you could potentially owe much more than $975 for not having coverage. The whole point of the penalty is to incentivise individuals to buy health insurance. At some point the penalty will be more than buying insurance. The penalty is paid as a part of your personal income tax.

– You must indicate whether you have had our health insurance coverage for a full year. Your penalty will be applied pro-rata for the number of months you didn’t have insurance (if greater than 2 consecutive months).

– For individuals that purchase health insurance through the State run exchange (i.e. Covered California), form 1095-A information needs to be filed annually as part of the health insurance disclosure. This form contains taxpayer infomation including: insurance provider, detailed monthly premiums paid and any subsidy recived (if any). Form 1095-A is mailed to taxpayers at the end of the calendar year.

There are certain subsidies that a person will receive based on your income level and household size. At the beginning of the tax period, you would have filled out a form of what you had expected to earn in the coming year, and from this amount, your subsidy will be calculated. At the end of the year, when filing personal income taxes, it will be determined whether the subsidies received was too high or too low, compared to the estimate. If you estimated your income too high you will recive additional credit on your tax return (lowing your tax bill). If you estimated your income too low you will have to pay back some of the subsidy you recived (increasing your tax bill). So it is imortant to make sure you estimate your income as accurately as possible and update as needed throughout the year to avoid any large discrepencies.  Report any changes in your annual income projection as soon as you become aware of them.

– A person can get subsidy assistance in California as long as their income is less than 400% of the poverty level (currently $46,680 for single individuals).

There are many exemptions that are available under the new health insurance policies though to get them you must apply for them. This is particularly important if you do not earn enough money to pay taxes, to avoid the penalty charges. For these exemptions, you should file IRS Form 8965.

A few of the major health coverage exemptions for 2015 are:

 

•           The lowest-priced coverage, through Marketplace or job-based plan, is more than 8.05% of your household income

•           You don’t have to file a tax return because filing a return

•           You were uninsured for less than 2 consecutive months of the year

•           You’re a member of a federally recognized tribe

•           You’re a member of a recognized health care sharing ministry

•           You’re incarcerated (serving a term in prison or jail)

•           You’re a U.S. citizen living abroad

 

Remember, if you require help understanding all the tax implications that you could face, contact the IRS through their website or hotline.