What Does Health Care Reform (Obamacare) Mean for Me and My Taxes?

Note: The following information concerns your 2014 Tax Return and actions that should be taken in 2013. Obamacare does not affect your 2012 or 2013 Tax Return.

Due to the Affordable Care Act (Obamacare), almost all U.S. citizens and legal residents will be required to have health insurance starting on January 1, 2014. There is a tax penalty for not having health insurance during 2014 and beyond. There are very few exceptions to this requirement.

What If I Already Have Health Insurance?

If you already have health insurance through your employer or a private company and you are satisfied with your current plan, there is no need to change anything.

If you have private health insurance (not through an employer), you may wish to check out the exchanges anyway, in case you can find a better deal.  You can get started at HealthCare.gov.

If you already have coverage and you wish to remain with your current plan, make sure you will still be covered starting on January 1, 2014 and beyond. If you don't have health insurance, or you expect not to have it on January 1, keep reading.

What If I Don't (or Won't) Have Health Insurance?

If you are not covered by health insurance for a period of 3 months or longer during 2014, you will have to pay a tax penalty when you file your 2014 Tax Return.

You can enroll in a health insurance plan through one of the new health insurance exchanges as of October 1, 2013. You can visit HealthCare.gov to get started.

Your employer may be required to offer you health insurance, so you should check with them, as well. If your employer employs 50 or more people, they are probably required to offer you health coverage. If they offer insurance to any employee, even if they have less than 50, then they must offer it to all employees.

If you can get coverage through your employer, you can still opt to get your insurance privately or through an exchange, but you will not quaify for a health insurance premium subsidy.

It generally takes a week or two for a new plan to take effect, so you should be enrolled by December 23, 2013 to make sure you are covered by January 1, 2014. However, you must be without coverage for 3 months during the year to be penalized, so don't worry too much if your plan hasn't kicked in by January 1.

If you don't think you can afford to pay for health insurance, please read on. 

What If I Can't Afford Health Insurance in 2014?

If your household income is between 100% and 400% of the federal poverty guidelines, and you do not qualify for Medicare, Medicaid, or employer-sponsored health coverage, then you will qualify for a subsidy to pay some or all of the cost of health insurance purchased through an exchange.

Health insurance premium subsidies are actually federal tax credits, but they are applied directly to the price of your premiums and act like a discount. The amount of your subsidy depends on your family size and income. The lower your income (and the larger your family), the higher your subsidy. 

For individuals and families with incomes from 100% to 400% of the federal poverty level, the out-of-pocket cost for health coverage will be from around 2% to 9.5% of the actual price (based on a plan that covers 70% of healthcare costs). Additional funds, called cost-sharing assistance, will be made available to households with incomes lower than 250% of the poverty level.

If you still cannot afford health insurance, or you choose not to purchase it, you must pay a tax penalty (see below).

Households with incomes less than 100% of the federal poverty level will generally qualify for Medicaid. More people, including single individuals, may qualify for Medicare, if their resident states are participating in the Medicaid expansion offered by the Affordable Care Act.

What Is the Federal Poverty Level?

The federal poverty guidelines are established each year by the U.S. Department of Health and Human Services. For 2013, the official poverty level for residents of most states ranged from $11,490 for an individual to $39,630 for a family of 8.

What Is the Tax Penalty for Not Having Health Insurance?

If you are not covered by health insurance for 3 months or longer during 2014, you will owe a tax penalty that is payable at the time you file your 2014 Tax Return. According to current law, the penalty will be phased in over 3 years:

For 2014, the penalty will be 1% of your taxable income, or $95 per adult and $47.50 per child up to $285 per family, whichever is greater.

For 2015, the penalty will be 2% of your taxable income, or $325 per adult and $162.50 per child up to $975 per family, whichever is greater.

For 2016, the penalty will be 2.5% of your taxable income, or $695 per adult and $347.50 per child up to $2,085 per family, whichever is greater.

Tax Penalty Exemptions

You may be able to qualify for an exemption to the tax penalty if you are:

  • unable to obtain coverage for less than 8% of your taxable income
  • facing financial hardship
  • a religious objector
  • a Native American
  • incarcerated

Important Dates

Health Insurance Exchanges Open October 1, 2013
Recommended Enrollment by December 23, 2013
Obamacare Takes Effect January 1, 2014
2014 Tax Return Deadline April 15, 2015


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