Year-End Tax Planning Part 3: Health Care Reform

/ December 24, 2014

Dr with clip boardThis is the first year that taxpayers are required to carry health insurance. Administration of the various health care payments, penalties and credits flows through the individual tax return.

Health Care Reform Tax Penalty

For 2014, if a taxpayer does not have qualifying coverage for himself/herself and any dependents, and does not qualify for an exemption, the taxpayer will be required to make an Individual Shared Responsibility payment (sometimes referred to as a penalty). This is due with the filing of the annual income tax return. The 2014 payment is the greater of:

  • 1% of household income above the tax return-filing threshold (rising to 2% in 2015 and 2.5% in later years), or
  • A flat dollar amount, which is $95 per adult and $47.50 per child for any month without coverage or exemption, limited to a monthly maximum of $285,

The maximum payment cannot exceed the cost of the national average premium for the Marketplace’s Bronze-level health plan in 2014.

Health Care Reform Premium Tax Credit

A taxpayer or non-dependent child may be eligible for the Premium Tax Credit – which can lower out-of-pocket premiums – if they:

  • Purchase insurance through the Marketplace,
  • Are ineligible for employer or government-plan coverage,
  • Are within specific low- or moderate-income limits (individuals with income below $45,960 and families of four more with income below $94,200), and
  • Cannot be claimed as a dependent by another person.
  • Filing a federal income tax return is also a requirement for the tax credit.

For more information about how Health Care Reform will impact your tax plan, contact a tax professional.

The final post in this series will focus on Minnesota specific tax changes.