The Affordable Health Care Act, known as Obamacare, requires all Americans to have healthcare insurance. Employers that don’t offer insurance and those that refuse to purchase coverage will get hit where it hurts them the most – their wallet.
People will be required to report their insurance coverage, or lack thereof, through their annual income tax returns.
Penalties will be levied on individuals without health coverage, as well as business owners that don’t provide it.
The Individual Mandate Tax
With the Individual Mandate Tax (IMT), in 2014, the fine amounts to $95 per adult and $47.50 per child, or 1 percent of income, whichever is greater. The penalty increases to $325 or 2 percent of the family income in 2015.
By 2016 penalties reach $695 per adult and $347.50 per child or 2.5 percent of the total income. Fines are based on a cost-of-living formula after 2016.
If the filer doesn’t pay the IMT, it’s carried over to the next year and interest continues to accrue on the total. Some will qualify for an exemption from the IMT. The Congressional Budget Office estimates that 30 million Americans will lack coverage in 2016 and 80 percent of that number will qualify for some type of relief.
Those qualifying for an exemption include inmates, people with religion-based objections, and members of Indian tribes.
Also exempt are individuals who can’t find an affordable plan, anyone that isn’t required to file a tax return, and those who are temporarily unemployed.
People living in states that have chosen not to expand Medicaid coverage and anyone paying more than 8 percent of their income for health insurance will avoid the IMT.
The Employer Mandate
Obamacare refers to the Employer Mandate penalty as a “shared responsibility fee.” The fines for businesses not offering insurance will be $2,000 per person, per year.
Companies that contribute 50 percent toward an employee’s insurance premium are eligible for tax credits of up to 35 percent of their contribution, provided the worker makes $50,000 or less per year and is a full-time employee.
The Employer Mandate affects approximately 5.8 million companies throughout the nation.
Business owners with 50 or more employees, or part-time equivalents, are required to offer their workers insurance.
Those that don’t will be assessed a fine. Full-time is defined as 30 or more hours a week.
The provision, set to take effect in 2014, has been delayed until 2015 to work out details on information reporting requirements for businesses.
The mandate stipulates that employer-provided healthcare must be affordable (no more than 9.5 percent of the employee’s wages.)
Employers offering unaffordable insurance, as defined by Obamacare, will be assessed a $3,000 penalty for each employee who receives the federal subsidy to purchase insurance through the Marketplace.
Policies must provide coverage for the employee’s children age 26 and younger. Plans do not have to offer benefits for spouses. The policy must provide “minimum value,” defined as paying at least 60 percent of the cost of covered services, including deductibles, co-pays and premiums.
The IMT is an incentive for individuals to purchase insurance and enforced through fines.