TAX SOLUTIONS: Health Care Tax Penalty
Wednesday, April 16, 2014

 By  A.J. Gross, C.P.A., E.A.

 
The deadline has passed to purchase healthcare under the Affordable Health Care for America Act, AKA Obamacare.  A decision was made not to purchase health insurance.  You rather pay the tax penalty.  We will review how to calculate the tax penalty for not purchasing health insurance.
 
All individuals must have health coverage in 2014.  Individuals without healthcare coverage will be charged a tax penalty.  The tax penalty is the greater of the following two calculations:
1) 1% of the yearly household income above the filing threshold or
2) $95 per person and $47.50 per child under the age 18. Maximum $285
 
Individual A:  A single person with a total household income of $18,000.  The filing threshold for a single person is $10,150 for 2014.  Using the 1% household income calculation the tax penalty is $78.50.  18,000 – 10,150 = 7,850 then multiply 7,850 times 1% which equals $78.50.   Using the flat rate calculation the tax penalty is $95.  This individual pays the maximum of the two tax penalty calculations.  The individual will pay $95 on his or her 2014 tax return. 
 
Individual B:  A single person with a total household income of $100,000.  Using 1% household income calculation the penalty is $898.50.  100,000 – 10,150 = 89,850 then multiply 89,850 times 1% which equals $898.50.   The 1% tax penalty calculation of $898.50 is greater than the flat rate calculation of $95.  This individual will pay an $898.50 tax penalty on his or her 2014 tax return.
 
The tax penalty rates increase in 2015 to 2% of household income or $325 per person.  Then in 2016, the tax penalty increases to 2.5% of household income or $695 per person.   Individual A will pay $325 in 2015 and $695 in 2016.  Individual B will pay about $1,800 in 2015 and $2,250 in 2016.  
 
There are exemptions to the tax penalty due to circumstance such as hardship, incarceration, having health care coverage for 9 months out of the year and health insurance is too expensive compared to your income.  Visit www.healthcare.gov for more information.  
 
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.
 
A.J. Gross, C.P.A., E.A. is President of ALG Tax Solutions. A.J. Gross can be contacted at AJGross@algtaxsolutions.
com or www.ALGTaxSolutions.com.
 
This was printed in the April 6 - April 19, 2014 edition.
 
 

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