What?! There’s a Tax Penalty!? | HealthTN.com

What?! There’s a Tax Penalty!?

HealthTN Affordable Care Act/Obamacare

The clock is ticking for millions of uninsured Americans who are grappling with a critical decision: Should they comply with the federal mandate to purchase health insurance or pay the penalty instead?

The Affordable Care Act requires most people who can afford health insurance to buy coverage – a provision known as the individual mandate – or pay a penalty based on their taxable annual income and household size.

About 4 million Americans will choose to pay a penalty in 2016 instead of purchasing health insurance, according to estimates from the Congressional Budget Office and the Joint Committee on Taxation.

Here’s what you need to know about the tax penalty and how it works:

Avoiding the Penalty

To avoid paying the tax penalty, individuals must purchase health insurance that includes a minimum of 10 essential health benefits – such as hospitalization, maternity care, prescription drugs and more – and covers at least 60 percent of their medical costs. People who have coverage through their employers or are enrolled in government-subsidized health plans such as Medicare, Medicaid, the Children’s Health Insurance Program or CHIP don’t need to worry about the tax.

This year, millions of uninsured Americans with low and moderate incomes will be eligible for tax credits (to help pay premium costs) and government subsidies (to help pay out-of-pocket expenses) when they purchase health insurance in the online marketplaces created by the law. In addition, millions of the nation’s poorest residents will be eligible for Medicaid in the states that have agreed to expand the federal state health program for people with low incomes, as proposed by the law.

Some Exemptions Apply

Uninsured individuals with incomes so low they aren’t required to file a federal tax return or who can’t find coverage that costs less than 8 percent of their income do not face a fine. Others exempt include members of Indian tribes, people whose religion objects to health insurance, undocumented immigrants, Americans living abroad, members of a health care sharing ministry or people in prison.

Flat Fee vs. Percentage of Income

The penalty for going without health insurance involves a flat fee or a percentage of taxable income, depending on which is greater. In 2014, the tax began at $95 per adult and $47.50 per child (up to $285 for a family) or 1 percent of annual income, whichever is greater.

In 2015, the penalty begins at $325 per adult and $162.50 per child (up to $975 for a family) or 2 percent of annual income, whichever is greater. By 2016, the tax is $695 per adult and $347.50 per child (up to $2,085 for a family) or 2.5 percent of annual income, whichever is greater. The tax will be adjusted for inflation beginning 2017.

Experts recommend seeking professional advice because the law comes with many tax complexities, including the penalty formula. The tax is based on the difference between your annual income and the “filing threshold” which refers to the amount you can earn tax free in a year (about $10,000 for an individual and $20,000 for a family in 2014).

Choosing to forego health insurance means you’re responsible for paying all your health care costs, from visits to the doctor’s office for vaccinations, health screenings and checkups, to ambulance rides and emergency department visits for life-threatening situations. You also won’t have any protection against astronomical medical bills – such as a $30,000 bill for a three-day hospital stay – that can sometimes lead to medical bankruptcy.

In the end, the choice is a personal one, but the real challenge is not whether you need coverage, it’s what coverage do you need? That is exactly what HealthTn.com is here for! Reach out to us today as we enter the open enrollment period and let us help you make the right decision. You can even call us at (615) 541-4257 to start the process!

At HealthTN.com we have been serving families in Middle, East and West Tennessee for the last 5 years as an extension of Continentalha.com. Our agents are from every corner of the state ready to serve all areas in East, Middle and West Tennessee. Our home office is currently located in Nashville, TN.