HEALTH REFORM – TAX YEAR 2014
HEALTH REFORM The number one change in tax reform by far and large is Health Reform. For business folks, the Obama administration gives a free pass in 2014, and deferred any requirements until 2015. Next year any employers with 50 or more full-time employees must provide employees with affordable health coverage or pay a stiff fine. If you are in the margin or have 50 or more employees, it is imperative that you begin planning for the tax consequences of this mandate. For individuals, 2014 is the year for Obama Care Lite. This means that if you are required to pay a fine it will be smaller in 2014 than in 2015 and the fine goes even higher in 2016. The purpose and design of the law is to gently nudge taxpayers into purchasing healthcare. What you must know:
Individual must have qualifying coverage for themselves and their dependents (those whom you claim on your tax return) to avoid the tax. This includes, for example, health coverage provided by an employer that meets minimum federal requirements, coverage purchased through an exchange and federal coverage such as Medicare, Medicaid, Tricare and veteran’s coverage. In addition the coverage must extend at least 9 out of 12 months of the year.
Individuals for whom coverage is too expensive are exempt from the tax. Individuals whose share of premiums exceeds 8% of the household’s Adjusted Gross Income (AGI) won’t be impacted.
You can have an exemption if you can show that a hardship forced you to go without coverage, including those whose insurance was canceled and who can’t buy an affordable policy.
If you do not have the qualifying coverage, the penalty is the higher of the two amounts: $95 per taxpayer ($47.50 for dependents under 18) with a ceiling of $285 or 1% of your AGI over $10,150 for singles, $20,300 for married filing joint, and $3,950 for each dependent claimed. For example, if you are single, claiming your six year old child, and you have an AGI of $25,000—your penalty would be calculated as follows: (AGI $25,000 – Single Amount $10,150 – Dependent Amount $3,950) multiplied by 1% = $109 So the higher of the two amounts would be— 1) $109 as calculated above. -or- 2) $95 + $47.50 = $142.50 In this case the penalty is assessed at $142.50. But in no case can the tax exceed the cost of a bronze-level exchange plan which is $2,448 for 2014 and $2,520 for 2015. If you are assessed with a penalty in 2014, we recommend you purchase qualified coverage immediately in 2015 as penalties will be stiffer going forward. Keep in mind credits—Lower-incomers get a refundable tax credit to help them afford coverage. They can elect to have the credit sent directly to an exchange to help pay premiums or take the credit on their returns. The credit is allowed on a sliding scale for filers with household income over $11,490 for singles and $23,550 for a family of four. It ends as household income hits $45,960 for singles and $94,200 for a family of four.