Affordable Care Act Update: Shared Responsibility

Posting by Brian Wynne

With 2014 coming to a close, you may be hearing more buzz about the new health care tax. This year was the first year that the Shared Responsibility provision of the Affordable Care Act was in effect. Under this provision, you are required to either have qualified health care coverage or pay a penalty with your annual income tax return. This applies to you and any dependents you are eligible to claim (regardless of whether you claim them or not).

So what does it mean to have qualified health care coverage? The good news is that if you have health insurance, it is probably qualified. Qualified health care coverage, also known as minimum essential coverage, includes a wide range of insurance options from employer sponsored health insurance to government programs like Medicare. To see a full list of what qualifies as minimum essential coverage, visit Healthcare.gov’s qualified coverage page.

If you find that you do not have qualified coverage, you may owe a Shared Responsibility payment with your Federal tax return. But before you break out the calculator, confirm that you are going to owe the payment at all. There are several circumstances under which you may be exempt even if you did not have coverage. For example, if coverage is considered unaffordable or you were uninsured for less than three consecutive months, you may qualify for an exemption. For details on these and other exemptions, visit Healthcare.gov’s fee’s & exemption page.

If you have determined that you will owe the Shared Responsibility payment, you will need a few pieces of information to do the calculation, including your household income from your tax return and your tax return filing threshold.

First, your payment is the greater of either a) 1% of your household income above your filing threshold or b) the annual flat dollar amount, which is $95 per adult and $47.50 per child (limited to a maximum of $285 per family).

Next, after you determine whether “a” or “b” above is greater, you compare it to the annual national premium for the bronze plan. Your payment is the lesser of these two amounts. For 2014, the annual national premium for the bronze plan was $2,448 per person (or $204 per month per person), maximum of $12,240 for a family with five or more ($1,020 per month per family).

If you were uninsured for only part of the year, then your payment is 1/12 of the annual amount, multiplied by the number of months for which you did not have qualified coverage.

Example: You were single in 2014, earned $50,000 and were uninsured for the entire year. Your filing threshold would be $10,150.

First, determine the greater of 1% of household income or the annual flat rate:

a) $50,000 – $10,150 = $39,850
$39,850 x 1% = $389.50

OR

b) $95

In this case, 1% of income is greater at $389.50.

Next, determine the lesser of the amount above or the annual national bronze plan premium. Since $389.50 is less than the $2,448 for the bronze plan, the Shared Responsibility payment would be a total of $389.50.

For additional information on the Shared Responsibility payment, please visit the IRS Affordable Care Act or Healthcare.gov.

If you have any questions, please contact us or consult with your tax advisor.

Filing Status Age Must File a Return if
Gross Income Exceeds
Single Under 65
65 or Older
$10,150
$11,700
Head of Household Under 65
65 or Older
$13,050
$14,600
Married Filing Jointly Under 65 (both spouses)
65 or older (one spouse)
65 or older (both spouses)
$20,300
$21,500
$22,700
Married Filing Separately Any age $3,950
Qualifying Widow(er) with
Dependent Child
Under 65
65 or older
$16,350
$17,550

Source: http://www.irs.gov/uac/ACA-Individual-Shared-Responsibility-Provision-Calculating-the-Payment

 

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