Taxing issues with the Affordable Care Act


(Chris Ratcliffe/Bloomberg)
Michelle Singletary
Columnist August 27, 2013

Much has been made of the financial hammer that will fall on people who can afford to pay for health care under the Affordable Care Act but choose to forgo coverage.

Starting next year, individuals and their dependents are required to have minimum essential health insurance unless they qualify for an exemption. That’s why you are hearing so much about the new health-care exchanges, which will have open enrollment from Oct. 1 to March 31.

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.” View Archive

If you are deemed to be in the financial position to pay for coverage or you don’t fall under an exemption, you’ll have to pay a penalty for being uninsured, which you will have to fork over when you file your federal income tax return.

The penalty for being uninsured starts at $95 annually for an individual and can go up to $285 for a family, or 1 percent of a family’s household income, depending on which is higher. The fee for children is half the adult amount and increases every year. By 2016 the penalty rises to $695 per adult, or 2.5 percent of household income, whichever is higher. The amount you may owe is based on the number of months in a year you go without the required coverage. You won’t have to pay if you are uninsured for less than three months of the year.

A fight over the requirement for coverage landed in the Supreme Court, which ruled that the penalty amounts to a tax. “The federal government does not have the power to order people to buy health insurance,” Chief Justice John G. Roberts Jr. said in upholding the landmark law. But, he added, the government “does have the power to impose a tax on those without health insurance.”

Since the penalty has been judged a tax, it means that the Internal Revenue Service is supposed to have the sledgehammer to carry out the mandate.

However, the reality — at least for now — is that the agency only has a soft mallet.

The law prohibits the IRS from using its usual tough collection tools — getting a lien against your property or putting a claim on your wages — to collect any payment you owe related to the individual responsibility provision of the health-care act.

Still, the IRS may collect your “shared responsibility payment” by snatching part or all of your refund, depending on what you owe. Additionally, if you fail to pay the penalty, interest will accrue, the IRS says. The interest charged is the same that is imposed for taxes that are paid late. An estimated 6 million people will pay a penalty tax for being uninsured in 2016, according to the Congressional Budget Office and the staff of the Joint Committee on Taxation.

Surely the government will be watching to see whether people figure out how to game the system by changing the amount they instruct their employers to withhold from their paychecks, which would result in their not getting a refund.

It’s through the federal income tax form that you will have to indicate if you have health insurance or are eligible for an exemption. But this doesn’t go into effect until you file your 2014 federal return in 2015.

The health-insurance marketplace will provide certificates of exemption, the IRS says.

There are a number of ways to avoid paying a penalty, including coverage through an employer, a veterans’ plan, Medicare or Medicaid. If you don’t fall into the various categories to avoid a fee, you can still request an exemption. Some individuals may qualify for an exemption on religious grounds or because they have very low income and coverage is considered unaffordable. You won’t face a penalty if you are not required to file a tax return because your income is too low.

The IRS says information will be made available later about how tax returns will change to allow people to report their health insurance coverage or an exemption. Health insurers will be required to provide everyone they cover each year with information that will help them demonstrate that they have coverage, the IRS says. So you may have to attach to your tax return a form much like you do now when you include your W-2 or a 1099 that reports other sources of income.

If you have more questions about tax issues regarding the Affordable Care Act, go to www.irs.gov. Search for “Questions and Answers on the Individual Shared Responsibility Provision.” You can also find answers at www.healthcare.gov.

As it is with so much concerning the Affordable Care Act, find out how it affects you especially because it will be linked to information you provide on your tax return.

Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.
com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.

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