Beginning April 1, 2014, the Individual Shared Responsibility provision (AKA the Individual Mandate) of the Affordable Care Act calls for each applicable individual to either buy minimum essential health coverage or pay a penalty when filing their federal tax return. However, many of those who are not exempt from this provision say they will pay the penalty instead of the health insurance premium.
Who is exempt from the Individual Mandate?
People who are members of certain religious groups, members of Indian tribes or those with incomes below the return filing threshold ($10,150 for individuals/$20,300 for married filing jointly) are exempt. In addition, people who are in the United States illegally or incarcerated are also exempt from the Individual Mandate. There are also some special rules in cases of financial hardships and those unable to afford coverage.
What is the penalty?
There has been some confusion on exactly how much the penalty tax is for not complying with the Individual Mandate. While there is a basic penalty in 2014 of $95, this amount is only for those who are single with no dependents and make less than $9,500. If your income is higher, your penalty is 1 percent of your adjusted gross income (AGI) minus the standard deduction. For example, if you are single with no dependents and make $60,000 your penalty will be closer to $500.
If you are married or have children, your penalty will be a minimum of $95 per family member over the age of 17 and $48.50 for each child under 18 up to $285.... UNLESS 1 percent of your AGI is more than $285. Confused now? Yea, a lot of us are!
In 2015 the penalty increases to $325 or 2 percent AGI and in 2016 to $695 or 2.5 percent of AGI.
Why are people choosing to pay the penalty?
It appears that most people who are choosing to pay the penalty are younger, healthy, single adults who would rather pay the 1 percent penalty over purchasing a "Bronze" plan for $4,500-$5,000 a year for an individual plan. A bronze plan provides the least amount of coverage while still providing the "minimum essential benefits" required by the Affordable Care Act. These individual are choosing to risk it to save around $4,000 a year.
What would you choose?
If you are trying to figure out which is the best option for you, give us a call... We can help you assess your options and/or calculate what your penalty will be for 2014.