Uninsured tax filers may owe penalties
By Samantha Lyles, Staff Writer, email@example.com
When preparing to file your income taxes this year, keep in mind that the new Affordable Care Act may affect your return. Although most people already have qualified health insurance coverage, those who were uninsured for part or all of 2014 may owe Uncle Sam some money.
We asked Rob Jordan of accounting firm Hill and Jordan how the new law will impact the average filer, and, as with most tax-related issues, the answer varies.
Jordan said his firm would be asking clients whether they had health insurance for the entirety of 2014. If the answer is no, the first step will be to read through a list of exemptions to the health insurance requirement. For example, you may be exempt if the amount you must pay for annual premiums is more than 8-percent of your annual income, or if you have a gap in coverage less than three consecutive months, or you have suffered a hardship that prevents you from obtaining coverage.
If you do not qualify for an exemption, a penalty – also known as a “shared responsibility payment” – may be required, and calculating that payment amount can be tricky. The standard formula listed on the IRS website indicates that the annual payment amount is the greater of these two: either 1-percent of your household income that is above the tax return filing threshold for your filing status, or a flat dollar amount of $95 per adult and $47.50 per child.
To calculate the former, say you are a single individual under age 65. You must file a return if your gross annual income exceeds $10,150. If your annual income totals $20,150, your shared responsibility payment is 1-percent of anything in excess of that filing threshold. So you would owe 1-percent of $10,000, or $100.
Jordan says for those who were uninsured for all or part of last year, a shared responsibility payment may be required by the IRS, but he fails to see how the government will collect unless the tax filer is due a refund.
“That penalty, it’s in the law that they cannot take it out of your bank account and they cannot seize property. The only thing they can do is reduce your refund,” says Jordan. “That is my understanding of it, and I’ve read articles by law professors on it and that’s what they think.”
Jordan says that, on paper, the shared responsibility payment would be calculated and the filer’s return reduced by the appropriate amount.
“If I did your return and you were supposed to get back $1,291 and the penalty was $291, you’d just get back $1,000,” says Jordan.
He notes that collection beyond that point is unexplored country, and he will be interested to see how the billing and collection process takes shape.
“If if you aren’t owed any money and it’s bust-out even, but you owe that penalty and you elected not to pay it, you might get a bill but it’s not enforceable like other taxes are,” says Jordan.
To learn more about how the Affordable Care Act may affect your tax filing, visit www.irs.gov/Affordable-Care-Act