Another new tax will start in 2014, courtesy of the Affordable Care Act – the tax on individuals without health care insurance. Taxpayers must have the minimum coverage as defined by the government for themselves and their dependents to avoid the tax. This requirement includes employer coverage, coverage purchased through an exchange, and Medicare, Medicaid, and Tricare. The employer mandate requiring healthcare coverage for companies with 50 or more employees was delayed until 2015, but the individual mandate was not.
The tax for being uninsured is the higher of:
- $95 for one individual plus $47.50 for each family member under the age of 18, with a maximum tax of $285 or,
- 1% of the excess of the taxpayer’s adjusted gross income (AGI) over the minimum level of AGI needed to require filing a tax return.
Both of these levels will increase in 2015 and again in 2016. The tax cannot exceed what a bronze level plan would cost the taxpayer, if purchased on the healthcare exchange. The tax is reduced pro-rata for each month the taxpayer had healthcare coverage.
Taxpayers may qualify for an exemption from the tax if the premium cost of their share of employer provided insurance exceeds 8% of household AGI. Likewise, taxpayers are exempt if the cost of a basic bronze level plan on the exchange exceeds 8% of AGI. Exemptions are also available for members of religious groups opposed to private or public insurance and those who can show hardship.
The IRS is responsible for monitoring compliance and levying the tax. Employers are voluntarily asked to report details of employee coverage in 2014. This information must be mandatorily reported in 2015. The tax will be collected annually on IRS form 1040.