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Health Care
2014 Tax Penalties Under the Affordable Care Act

Under the Affordable Care Act (ACA), most Americans must be covered under a form of health insurance or face a penalty on their 2014 tax return. The type of health insurance you must have is called minimum essential coverage (MEC). This provision of the ACA went into effect January 1, 2014.

Do I have minimal essential coverage (MEC)?

You are responsible for coverage for yourself and your children. The main ways to have MEC are:

  1. Health insurance coverage through your job, also known as employer-sponsored coverage.
  2. Health insurance through a government-sponsored plan—for example, NJ FamilyCare, Medicaid, or Medicare.
  3. Coverage through a plan on the individual market. This is a plan you choose and pay for on your own, not part of a group plan. Subsidies are available for low-income New Jersey residents to purchase a plan on the federal Marketplace at HealthCare.gov. Open enrollment is closed for 2014, but you may qualify for a special enrollment period.

What if I don’t have MEC?

Check to see if you qualify for an exemption. You qualify for any of the following reasons:

  1. You are uninsured for less than three months out of the year.
  2. The cheapest coverage would cost more than 8% of your household income.
  3. Your income is so low, you don't have to file an income tax return (in 2014, $10,150 or less for an individual, $20,350 or less for a married couple).
  4. You’re a member of a federally recognized Indian tribe, a health care sharing ministry, or a religious sect that objects to health insurance.
  5. You are in prison.
  6. You are an undocumented immigrant.
  7. You qualify for a hardship for one month or more because:
    • You were homeless.
    • You were evicted in the past six months or were facing eviction/foreclosure.
    • You received a shut-off notice from a utility company.
    • One of your close family members recently died.
    • You experienced a disaster that caused substantial damage to your property.
    • You filed for bankruptcy in the last six months.
    • You had medical expenses you couldn’t pay in the last 24 months.
    • You experienced unexpected increases in expenses due to caring for an ill or disabled family member.
    • A child you claim as a tax dependent has been denied Medicaid or CHIP coverage and a court order requires somebody else to provide the child with medical coverage.
    • You were not enrolled in a qualified health plan because you were awaiting an appeals decision about enrollment/fees in a qualified health plan.
    • You were found ineligible for Medicaid because your state did not expand Medicaid enrollment under the ACA.
    • Your individual insurance plan was canceled and you believe other marketplace plans are unaffordable.
    • You experienced another hardship getting health insurance.

How do I apply for an exemption?

You can apply for some exemptions when you complete your federal tax return for 2014. You can apply for other exemptions using forms available online at Health Insurance Marketplace (from CMS.gov).

What if I don’t have MEC and don’t qualify for an exemption?

If you or your dependents don’t have insurance that qualifies as MEC, you will have to pay a penalty on your 2014 federal tax return. The penalty in 2014 is calculated two separate ways, and you will pay whichever of these amounts is higher:

  • 1% of your yearly household income that is over the tax filing threshold ($10,150 for an individual).
  • $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.

The penalty increases every year. In 2015, it’s 2% of income or $325 per person. In 2016 and later years, it’s 2.5% of income or $695 per person. After that, it will be adjusted for inflation.

What happens if I was uninsured for only part of the year?

If you’re uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you’re uninsured. If you’re uninsured for less than three months, you do not have to make  a payment.

It is important to remember that even if you pay the penalty, you still don’t have any health insurance coverage. So, you will owe the penalty and you will still be responsible for the cost of your medical care.

If you have questions about tax penalties under the ACA, go to the IRS website. You may also call LSNJLAWSM, Legal Services of New Jersey’s statewide, toll-free legal hotline, at 1-888-LSNJ-LAW (1-888-576-5529). You may also apply online. Hotline hours are Monday through Friday, 8 a.m. to 5:30 p.m. If you are not eligible for assistance from Legal Services, the hotline will refer you to other possible resources.

 

This article appeared in the May 2014 edition of Looking Out for Your Legal Rights®. ​

5/22/2014