Tax Result of No Health Insurance | RKL LLP
Posted on: July 22nd, 2014

Adding It Up: The Tax Implications for Individuals Forgoing Health Insurance

Under the Affordable Care Act, individuals who forego health insurance will assume tax liabilities.

Under the Affordable Care Act, individuals who forego health insurance will have a shared responsibility payment when they file their 2014 taxes.

Under the Affordable Care Act, the responsibility for health insurance is shared among Federal government, State governments, insurers, employers and individuals. The individual shared responsibility provision requires that all individuals in a family have minimum essential coverage, an exemption from minimum essential coverage or make a shared responsibility payment when the 2014 Federal income tax return is filed.

What is minimum essential coverage?

If you have employer-sponsored insurance or coverage obtained through a Health Insurance Marketplace, you have minimum essential coverage. Certain other plans will qualify as well.

What if you don’t have minimum essential coverage?

The first consideration is, are you exempt? This applies to individuals who are members of certain religious sects, a federally recognized Native American tribe or a health care sharing ministry, those without coverage for less than three consecutive months and individuals whose minimum essential coverage costs more than eight percent of their household income. If none of those apply, you will need to make a shared responsibility payment with your 2014 tax return when it is filed in 2015.

How much is the shared responsibility payment?

If you or any of your dependents do not have minimum essential coverage for 2014, the individual shared responsibility payment is the greater of : one percent of your household income that is above your tax return filing threshold or a flat dollar amount based upon the number of family members without minimum essential coverage. For 2014, the flat dollar amount is $95 per adult and $47.50 per child under age 18, limited to 4 children. For those who have minimum essential coverage for part of the year, the payment is pro-rated based upon the number of months the individual is without health care coverage. The maximum amount paid cannot be more than the cost of the national average premium for a bronze level plan available through the Marketplace in 2014.

Can you give me an example?

For example, assume Jim and Julia are both under age 65 with two dependent children under the age of 18. They do not have minimum essential coverage for all of 2014 and no one qualifies for an exemption. For 2014, the Federal tax filing requirement threshold is $20,300 for taxpayers filing married filing jointly. Jim and Julia’s household annual income is $65,000. Based upon the income formula, their payment would be $447, $65,000 less the $20,300 filing threshold is $44,700 and 1% of $44,700 is $447. Their flat dollar amount is $285, which is $95 per adult and $47.50 per child. Since $447 is larger than $285 and less than the national bronze level premium, Jim and Julia’s shared responsibility payment for 2014 would be $447.

The percentages and flat dollar fee amounts increase in 2015 and 2016. For 2015, the individual shared responsibility payment is the greater of: 2% of household income above the tax return filing threshold or a flat dollar amount of $325 per adult and $162.50 per child under age 18. For 2016, the individual shared responsibility payment is the greater of: 2.5% of household income and $695 per adult and $347.50 per child under age 18.

Have questions about the impact of the Affordable Care Act on your business or personal tax position? RKL is here to help. Contact your RKL  service provider.

shaub_closeupContributed by Krista L. Shaub, CPA, CSEP, a manager in RKL’s Tax Services Group. Krista has more than 13 years experience in public accounting, specializing in tax planning and compliance for individuals, businesses and fiduciary clients. 

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