Weather you call it Obamacare or the Affordable Care Act (ACA), the new health care laws could have a large impact on your upcoming taxes. Tax preparers and bookkeepers across the country are preparing for an influx of questions on topics from the premium tax credit to the personal responsibility tax. Today I would like to cover a couple of the more common questions that we are seeing as this new era kicks off.
What is the premium tax credit?
In layman’s terms, this is how the ACA law plans on making insurance affordable for those who are uninsured. This credit is calculated using your federal adjusted gross (AGI) income (with some adjustments), and then is compared to the national poverty level. If your AGI is within certain limits (up to 400% of the poverty level) you may qualify for a credit towards your health care premiums. This credit can be applied in one of two ways, either monthly paid directly to the insurance company leaving you to pay the remaining balance, or you pay the entire balance of the premium all year and receive a refundable tax credit on your 2014 tax return.
What is the personal responsibility tax?
This is the “penalty” that has been in the news so much. If the premium tax credit is the carrot then this is certainly the stick of ACA. If you did not have health insurance for 30 days at any point during 2014 you may be affected by this tax. This tax is calculated on a per month basis and has many complex components. The most amount that his tax can be is the greater of $165 or 1% of your income. This may not sound like a lot but if your AGI is $50,000 your penalty could be upwards of $500.00.
If you are receiving the premium tax credit and your income changes drastically throughout the year, it is imperative that you update your healthcare.gov profile to adjust the credit accordingly.
If you have any questions with this or any tax issue we urge you contact our office. We specialize in both personal and business tax returns and can help you avoid costly mistakes and paying more than your fair share.