Starting for the 2014 tax year, all individuals are required to have qualified health plan coverage for themselves and their dependents for every month of the year or they may face a penalty. The penalty is for each month an individual is not covered. You meet the month qualification as long as you are covered for a minimum of one day in the month. Short lapses of coverage during the year are exempt from the mandate. Generally, failing to have qualified health coverage for less than three consecutive months will not trigger a penalty. However, the exemption applies only to the first gap in coverage and not to any subsequent gaps for three months or less during the year.
If you have insurance through your employer, spouse's employer, or are on Medicare, Medicaid, CHIP, or a Veterans Program, you probably have met the mandate and are not subject to a penalty (provided you were covered for every month of the year). If you obtained healthcare through the Marketplace, then you have also met the mandate. Individuals who have insurance through the Marketplace will receive a new form, 1095-A. Please include this form with your tax documents so that we can ensure that you are not subject to penalties and receive any credits you may be due.
Some taxpayers may qualify for an exemption to the mandate. Such exemptions include religious preferences, individuals who are not citizens and incarcerated individuals. To qualify for these exemptions, an individual must obtain an official certification from the Marketplace.
Also exempt from the penalty are individuals who cannot afford the coverage based on household income and economic hardships. Household income includes income from all individuals that the taxpayer properly claims as a dependent who are required to file an income tax return. To qualify for an exemption based on income, the taxpayer must calculate his household income in relation to the cost of healthcare to see if it falls below 8%. This is a complicated calculation which is determined while we complete your tax returns. This calculation will only be computed if you or any members of your household do not have minimum essential coverage. If your household income is below the threshold for filing a tax return, you are also exempt from the penalty.
Certain low and middle income individuals may qualify for a refundable premium assistance credit to help them pay for their insurance premiums. This credit is only available to those individuals who obtained their insurance through the Marketplace. If you met the requirements for the premium assistance credit when you signed up for your coverage, you were given an advance payment based on your projected income for the year. You must reconcile with the IRS on your current tax return whether you are entitled to more or less of the premium assistance credit. Keep in mind that you may not be qualified to receive the premium assistance credit if your household income for 2014 was higher than you anticipated when you initially signed up for your coverage, and therefore you may have to pay it back. Alternatively, you may find that you were eligible for more assistance and could receive a credit.
The calculation of the penalty for not following the mandate is generally the sum of monthly penalty amounts for all months in the year in which any nonexempt individual for whom the taxpayer is liable did not have essential coverage. There is a cap at an amount equal to the national average premium for bronze-level qualified health plans offered through the Marketplace for the applicable family size. Calculating the penalty is complicated and involves comparing two figures: a dollar amount (determined yearly) per uninsured individual in the household, and household income over the income threshold amount required for filing for that taxpayer. This penalty is treated as an additional amount of Federal Tax owed and could increase your Federal balance due or reduce your federal tax refund. If payment is late, the IRS will accrue interest on your late payment.