The Affordable Care Act (ACA) also known as Obama Care is causing a lot of concerns with individuals who are now required to purchase health insurance by March 31, 2014 or face a penalty.
I wanted to be ready when clients began to contact me about the penalty. So I started doing my homework. I discovered that there is a lot of confusion regarding the amount of the penalty and how it will be collected.
During my research I found that there was little detailed information on the penalty and how it would be collected. The “talking heads” on the various news channels’ were no help and just added to the confusion.
Based on my research, I present my findings. Please keep in mind that this information is presented as a general guide to the penalty for not having insurance.
Here we go.
The penalty in 2014 is either a set amount of $95 per adult, $47.50 per child, capped at $285, or 1% of household income, whichever is greater.
The set amount penalty works as follows; if 1% of your household income is less than the set amount then you pay the set amount. For example if you are single you would pay $95. If you are married with three children you would pay $285. ($95. For you plus $95 for your spouse and $47.50 for just two of your children, since the amount is capped.) ($95+$95+47.50+47.50 = $285.)
1% of your HOUSEHOLD INCOME:
The 1% of household income penalty works as follows, if 1% of your household income is greater than the set amount then your penalty is 1% of your household income, with the total penalty capped at $5,000 for an individual and $12,500 for families. What your household income is has not been specifically defined yet but you can get in the ball park by calculating it as follows: If you are single, take Adjusted Gross Income (AGI) less the amount of your Personal Exemption and less the amount of your Standard or Itemized Deduction times 1%. If you are married, take AGI less the amount of the Personal Exemption for both you and your spouse and less the amount of your Standard or Itemized Deduction times 1%.
Now let’s use the 2012 Personal Exemption and Standard Deduction amounts to illustrate.
Say you are single and have AGI of $30,000 your penalty would be approximately $202. ($30,000 - $3,800 - $5,950 = $20,250 x 1% = $202.50)
If you are married and have AGI of $50,000 your penalty would be approximately $305. ($50,000 - $3,800 - $3,800 - $11,900 = $30,500 x 1% = 305)
How will this be paid, well when your 2014 tax return is prepared the penalty amount will either reduce the amount of your refund or it will increase the amount of tax you owe.
One final thing, the amounts of the penalties will go up as follows:
In 2015 the set amount is $325 per adult and $162.50 per child capped at $975 or 2% of household income, whichever is higher.
In 2016 the set amount is $695 per adult and $347.50 per child capped at $2,085 or 2.5% of household income, whichever is higher.
If you would like to find out more about my firm check out my website @ www.amazzoaccounting.com.