The Affordable Care Act (“ACA”), enacted in 2010, expands health insurance coverage and benefits across America. This blog will cover tax highlights with regard to this new law.
Who must get health insurance?
Starting in 2014, ACA requires most U.S. citizens and legal residents to have health insurance. Employer-sponsored health plans, private plans, Medicaid, Medicare and government-sponsored exchange plans are acceptable coverage according to ACA. Exemptions from getting health insurance include financial hardship, religious objections, people whose family income falls below the threshold for filing an income tax return (for 2013 that would be $10,000 for an individual and $20,000 for a family), and those for whom the lowest cost plan option exceeds 8%of their income.
What is the penalty if you don’t have health insurance?
A penalty will be phased in as follows:
- 2014 – The greater of $95 per adult plus $47.50 per child (up to $285 for a family), or 1% of family income.
- 2015 – The greater of $325 per adult plus $162.50 per child (up to $975 for a family), or 2% of family income.
- 2016 – The greater of $695 per adult plus $347.50 per child (up to $2,085 per family), or 2.5% of family income.
What is an American Health Benefit Exchange?
The “exchange” is a newly created government marketplace through which individuals can purchase health insurance coverage. The first open enrollment through government-sponsored exchanges begins October 2013 and ends March 2014. Some states will have their own exchange, while other will use a federal exchange. During this period, you will be able to have online access to the different insurance exchange plans available to you.
Individuals and families with income between 100% – 400% of the federal poverty level (for 2013 that would be $19,530 for a family of three) may be eligible cost-sharing subsidies and premium tax credits. Employees who are offered coverage by their employer will generally not qualify for this financial help. Eligibility for assistance will be determined by family size and income. Recipients will be responsible for updating the exchanges about any life changes (for example getting married or having children or changes in income). They will also be required to file a tax return to ensure the subsidy is correct in relation to income.
How will ACA impact employers?
Employers with no more than 25 employees and average annual wages of less than $50,000 who purchase health insurance for employees may be eligible for a tax credit. The credit phases out as firm size and average wage increases.
Employers with 50 or more full-time employees who don’t offer health coverage and have at least one full-time employee that receives a premium tax credit could be assessed a fee of $2,000 per each full-time employee (the first 30 employees will be excluded from assessment). If the employer does offer coverage but still has at least one full-time employee receiving a premium tax credit, the employer will pay the lesser of: a) $3,000 for each employee receiving a premium tax credit, or b) $2,000 for each full-time employee (the first 30 employees will be excluded from assessment).
Employers with more than 200 employees must automatically enroll employees in employer-sponsored health insurance programs. Employees may opt out of this coverage.
There are a multitude of details comprising the Affordable Care Act. Gary Kaplan is well-informed on ACA tax aspects affecting individuals and employers. Gary can help you with compliance as well as potential benefits you may be entitled to.
