As you may aware, beginning in 2014, the Patient Protection and Affordable Care Act (P.L. 111-148, as amended) requires you to pay a penalty at tax time if you do not obtain and retain health insurance that meets the “minimum essential coverage” standard for yourself and your dependents. This requirement applies to almost everyone, including self-employed individuals.
The penalty will be calculated using the greater of a flat dollar amount or a percentage based on household income.
The penalty applies for each month that you are without “minimum essential coverage.” However, the requirement does not apply if you are a member of a health care sharing ministry, you claim a religious conscience exemption, you are not lawfully present in the United States, or you are in jail. Also, you will be treated as having minimum essential coverage for any month in which you are a bona fide resident of a U.S. possession or live in a foreign country and qualify for the foreign income tax exclusion.
Health insurance obtained in the individual insurance market in your state is just one type of insurance that would meet minimum essential coverage standard. You also avoid the penalty if you have any of the following:
• coverage through your employer-sponsored plan, including a governmental plan;
• other government insurance, including Medicare, Medicaid, or coverage through a military program; or
• other coverage recognized by the federal government as meeting the minimum essential coverage standard.
There are many other types of insurance that will not be sufficient to meet the standard and, thus will not avoid the penalty. Examples include disability income insurance, workers’ compensation insurance and, if offered separately, limited scope dental or vision benefits, Medicare supplemental health insurance, and long-term care benefits.
If your employer reports that you are covered by the employer-sponsored health plan, you will not be required to take any further action.
Even if you cannot avoid the penalty through the health coverage you secure or your current status, there are many other situations that could prevent the IRS from assessing the penalty against you. No penalty is imposed if: you are without coverage for no more than 3 months; your household income is less than the amount required for you to file an income tax return; the cost for coverage under your employer-sponsored plan or under a qualified health plan through a health exchange exceeds 8% of your household income; you suffer a hardship in obtaining coverage under a qualified health plan; or you are a member of an Indian tribe.
If, however, you owe the penalty, the IRS has a prescribed manner in which it may collect the amount owned.
This new law will complicate the tax filing of every taxpayer. Your situation with health coverage will be an issue we need to gather information on for the upcoming tax return preparation. Note that the household income is an important part of the calculation for many taxpayers. If your children worked at even a small part-time job you may need to be aware of their earnings to complete your own return.