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Affordable Health Care Act Basics for Individuals - Houston Small Business CPA

Over the last couple of weeks we have been talking about how Obamacare, rising insurance premiums and compliance issues will affect Houston area small business owners - but what about regular employees? With over 2,300 pages, the law is far reaching and affects every citizen of the United States.

The Individual Mandate
Beginning in 2014, all citizens of the United States will be required to purchase health coverage. Those without coverage will be subject to a tax penalty that goes up every year you are not covered. Citizens will be able to purchase employer provided coverage, through public health insurance exchanges, or private providers.

Do all insurance plans comply with Obamacare?
No, you must purchase a plan with a minimum health benefits package. These plans must cover a long list of items, such as, emergency care, preventive & wellness care, mental health & substance abuse care, etc.

The plan will also need to cover a certain amount of the cost of those benefits. A health plan that covers hospitalizations, for example, isn't much use if it only pays $10 or so toward a visit. To satisfy the individual mandate, all coverage must cover at least 60 percent of the average person's medical costs.

How much is the penalty if I choose not to purchase insurance?
If you don't purchase insurance, you will be assessed a tax of $95 (or 1% of income, whichever is higher) in 2014. It increases to $325 (or 2% of income) in 2015, and $695 (or 2.5% of income) in 2016. This penalty will be administered by the IRS through your tax return.

What if I don't pay the penalty?
The law prohibits the IRS from seeking to put anybody in jail or seizing their property for simple refusal to pay the tax. The law says specifically that taxpayers "shall not be subject to any criminal prosecution or penalty" for failure to pay, and also that the IRS cannot file a tax lien or a levy against your property or bank accounts. So far, the IRS has not spelled out exactly how it will enforce the new penalty with the limited power the law gives it.

However, if you are owed a refund, the penalty will be deducted from your refund.

Is anyone exempt?

  • People of certain religious beliefs
  • Members of Native American Tribes
  • Anyone below 138 percent of the federal poverty level (in 2013, $15,856 for an individual, or $32,499 for a family of four)
  • Anyone who must pay more than 8 percent of Annual Income toward their individual insurance coverage (NOT family plans) after Employers Contribution.

How will the IRS know if I'm insured?
Your insurance provider will have to send you and the IRS a form confirming that you have the minimum essential coverage. When you file your 1040, you will attach that form to your return. Think of it like a 1099 form on which your bank reports your interest income to you and the IRS.

IRS Changes Filing Deadlines for W-2 & 1099 Forms

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