In my book The Complete Guide to the Affordable Care Act, I discuss the Act in great detail. Monday we discussed Health Exchanges. Tuesday we introduced SHOPs for Small Businesses. Today we are going to discuss Provisions for Individuals.
On June 28, 2012, the Supreme Court ruled that the individual mandate requiring the purchase of health insurance was Constitutional. In the Court’s ruling it upheld Congress’ power to require this mandate under its authority to tax. Individuals are required to maintain minimum essential coverage each month (explained in Chapter One) or pay a penalty.
Beginning January 1, 2014, all U.S. residents are required to maintain minimum essential coverage unless the individual fall into one of the following exceptions:
· Individuals with religious conscience exemptions;
· Incarcerated individuals;
· Undocumented aliens;
· Individuals that cannot afford coverage;
· Individuals with a coverage gap of less than three months;
· Individuals in a hardship situation as defined by Health and Human Services;
· Individuals with income below the tax filing threshold; and
· Members of Indian Tribes
Individuals are responsible for ensuring themselves, and any dependent, are covered under minimum essential coverage. Minimum essential coverage includes:
· Government sponsored programs including: Medicare, Medicaid, Children’s Health Insurance Program coverage, coverage through Veterans Affairs, and Health Care for Peace Corp Volunteers;
· Employer sponsored plans;
· Individual market plans; or
· Other coverage designated as minimum essential coverage by Health and Human Services and/or the Department of Treasury
As we touched on in Chapter One, the Internal Revenue Service will impose a tax penalty on individuals, beginning in 2014, that don’t have qualified insurance. The penalty is phased in according to the following schedule:
· In 2014 the penalty is, $95.00 per adult and $47.50 per child, up to the family maximum of $285.00 or 1% of the family’s income, whichever is greater;
· In 2015 the penalty is, $325.00 per adult and $162.50 per child, up to the Federal maximum of $975.00 or 2% of the families income; and
· In 2016, the penalty is $695.00 per adult, and $347.50 per child up to the family maximum of $2,085.00 or 2.5% of the family’s income
Beginning after 2016, the penalty will be increased annually by the cost of living adjustment.
In order to help an individual purchase healthcare the Internal Revenue Code was amended to add §36B, which provides for a premium tax credit to help individuals and families purchase health insurance coverage. These tax credits are available to U.S. Citizens and documented residents in families with incomes between 133% and 400% of the Federal Poverty Level, who purchase coverage through the Insurance Exchange.
The Federal Poverty Guidelines for 2013 from the Department of Health and Human Services, are listed on the table below
Person in Family or Households
100% of Poverty
125% of Poverty
150% of Poverty
Families with more than 8 persons
(100% add $3,960)
(125% add $4,950)
(150% add $5,940)
Those offered health coverage through their employers are not eligible for premium tax credits unless the employer plan is deemed unaffordable. A plan can be deemed unaffordable if the plan does not have actuarial value of at least 60% or the individual’s share of the premium exceeds 9.5% of their income.
The premium health credit would be refundable. To ensure that all people are covered by insurance the tax credit will be able to be advanced to certain individuals. The credit would be refundable even if the taxpayer does not have a tax liability. Exchanges are required to provide information to prospective enrollees about their eligibility for premium tax credits.
To facilitate the Exchanges having the information that they need to make a determination on whether the tax credit can be advanced to the taxpayer, the Internal Revenue Service on June 4, 2012 issued REG-119632-11. The Treasury Regulation points out that under IRC § 6103(l)(21), the Service would be permitted to exchange tax return information to the Exchanges to help facilitate a determination on the eligibility of a taxpayer for an advance of the premium tax credit. Before premium health care credits are issued to taxpayers, States will determine whether the taxpayer is eligible for State run healthcare programs first.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle, The Complete Guide to the Affordable Care Act’s Tax Provisions available on Nook and Kindle, The Complete Guide to Retirement Plans for Small Businesses available on Nook and Kindle, The Complete Guide to Estate, Gift and Trust Taxation, available on Nook and Kindle, and The Complete Guide to Hiring an Accountant, available on Nook and Kindle.