What You Need to Know About Affordable Care Act Tax Penalties

Get the Scoop on ACA Tax Penalties 2014 to 2017

ACA Tax Penalties
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American citizens are required to have health insurance coverage or they will face certain tax penalties under the 2010 Patient Protection and Affordable Care Act. These tax penalties are enforced by the Internal Revenue Service (IRS) and this year as millions of US individuals file their income tax returns, they will be affected by this law. Luckily, the tax penalties will be rolled out in steps so that citizens have the time to purchase health insurance that meets the minimum requirements.

Here's what you need to know about the Affordable Care Act tax penalties for American citizens moving forward.  

Penalties for Tax Year 2014

For those filing their 2014 income tax returns, there are penalties that were effective after the January to March open enrollment period for 2014. An individual who did not have the minimum required insurance coverage is assessed a $95 per person penalty or 1% off their annual gross income, whichever is greater.

Penalties for Tax Year 2015

Starting January 1, 2015, for this upcoming tax year, the penalties raise substantially, part of the plan to raise tax fines over a few years. For tax year 2015, the penalty for not having the required minimum health insurance is $325 per individual, regardless of annual gross income. As an example, for a family of four the tax penalty could be $1,300.

Penalties for Tax Year 2016

Moving into the 2016 tax season, which people will begin filing in January of 2017, the ACA penalties are doubling from the previous tax year. This is the deadline for all eligible Americans to have their minimum health insurance coverage. The 2016 tax year penalty is $695 per individual or up to 2.5 percent of the reported annual gross income, whichever is greater. It’s important to note that families will pay half of this penalty ($347.50) for children up to age 18, with a cap of $2,085 per family with reported income for the year.

Tax Penalty Exceptions for Financial Hardships

It is not the intention of the Affordable Care Act to create overwhelming hardships for the average person or for families in the USA. Instead, the ACA is designed to encourage all Americans to have a certain level of health care to reduce and treat many of the preventable illnesses that drive up health care costs. Along with ACA minimum health insurance requirements, there are some exceptions for those who are experiencing certain financial hardships or income limitations.

Under the new state exchanges, individuals and families can shop for health insurance based on their income levels. Many are eligible for government subsidies that pay for a large portion of monthly insurance premiums, in a cost-share arrangement. The Henry J. Kaiser Foundation released a helpful Health Insurance Marketplace Calculator so consumers can evaluate whether they may be eligible for a government subsidy and reduced insurance premiums based on household income.

ACA Tax Credits and Pay or Play Penalties for Employers

A big part of the Affordable Care Act is to crack down on employers who do not provide adequate employee benefits for their workers. Health insurance, dental insurance, and other benefits are important for the well-being of all working people, therefore the ACA has been designed to legally enforce requirements for minimum coverage. Along with the requirements, there are certain penalties for employers who do not comply with the ACA as they fall under this law.

In 2014, employers did not have to offer their employees health insurance, but those with 50 or more full time (or the equivalent) employees are being made to pay an assessment on whether their employee benefit programs met the minimum requirements. In other words, employers are being evaluated on whether or not they are providing access to affordable health care insurance. How is this calculated? The employer must pay less than 60 percent of the cost of benefit premiums and the remaining 40 percent must not equal more than 30 percent of employees’ gross income.

For employers with 50 or more employees who comply with the ACA, they can expect to earn a $2,000 tax credit for each employee (over the first 30 counted) if any of their employees received a tax subsidy through a state marketplace.  Those employers who do not meet ACA minimum coverage requirements will face stuff fines for tax year 2015, which include $2,000 per full time employee.  This is called the Pay or Play mandate, explained for your convenience.  

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