Affordable Care Act: Tax Consequence

The new health care law contains a tax for those that fail to have/purchase health insurance. The tax is expected to be the higher of the basic penalty or an income-based levy.

The basic penalty will be $95 a person ($47.50 for each person under 18 years) in 2014, with a ceiling of $285. The income-based levy is calculated by taking 1% of the taxpayers AGI (adjusted gross income) over the minimum level of AGI needed to file a tax return. The tax in either instance is reduced proportionally for any months the individuals had coverage.

The tax can’t exceed the cost of the basic bronze-level plan.

It will be paid on the tax return, so the 2014 tax will be paid on its tax return in early 2015. Since employers have voluntary reporting of their employees coverage in 2014, the IRS will not have accurate data about those who are going without coverage that year. They will be allowed to offset tax refunds to collect the penalty, but not to collect interest on the unpaid balance.


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