How can the new Healthcare Law affect your taxes?

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With the onset of Obamacare starting this year all citizens are required to have a medical insurance. The system has been restructured to ensure that everyone has access to affordable healthcare including individuals with preexisting conditions.

The purpose of the law is to streamline the process of finding insurance and lower the prices through competitive offering. It also adds to transparency in health insurance rates and ensures that most of your money (80% of your premium) goes towards your care.

Starting next year, there will be a question on your tax return for 2014 on whether or you had health coverage. Individuals without the coverage may be responsible for additional payments on their tax returns in the following year. The government may charge tax penalty to individuals who were uninsured for 3 consecutive months or longer in 2014. That penalty will be based on income and number of uninsured individuals in the household.

Where to buy the coverage?

Individual states and the federal government manage marketplaces for health insurance, also called exchanges. That’s where you can go to evaluate and compare different coverage plans and purchase your plan. It is also a place for small business owners to shop for insurance plans for their employees.

Marketplaces are one place to get insurance but you may purchase it elsewhere if you wish. One disadvantage is that if you buy your insurance outside of the Marketplace, you will not qualify for a potential subsidy from the government.

What if I can’t afford the insurance?

The government realizes that not every citizen is in condition to pay for the coverage and for that reason a subsidy system was put in place. Your eligibility for the subsidy will depend on:

  • Your income.
  • State of residence.
  • Available coverage.
  • Legal status (citizen or a legal resident).

Health Insurance Marketplace can help you estimate your payments and whether or not you qualify for a subsidy based on the above conditions. A general income guideline to receive a subsidy is:

  • Single – income of $45,960 or less ($52,920 for Hawaii).
  • Couples – income of $62,040 or less ($71,400 for Hawaii).
  • Family of Four – income of $94,200 or less ($108,360 for Hawaii).

How can the new Healthcare Law affect your taxes?

If your employer pays for your health insurance the total amount paid may start appearing on your W2 form and you will have to report it on your tax return, but that amount is not taxable. That amount is comprised of insurance premiums or some types of flexible spending. Additionally, the limit for medical deductions will increase from the current 7.5% to 10% except for the taxpayers who are 65 years or older.

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