The individual mandate starts in January 2014 and is an important part of the Affordable Care Act. The individual mandate requires people legally living in the U.S. to buy a minimum amount of health coverage unless they are exempt. In general, people who don’t have to file taxes due to low income are exempt from the individual mandate.
But how does it work? And what are the penalties for people who don't get coverage?
How the individual mandate works
When your clients file their 2014 taxes in 2015, they’ll need to report whether or not they had health coverage in 2014. If they did have coverage, they will need to report if they qualified for a tax credit or subsidy. Health coverage includes a group plan, an individual plan, Medicare or Medicaid. If they don’t have health coverage, they could face a tax penalty. Each year, the penalty increases.
What are the tax penalties?
If a person doesn’t have a health plan, he or she will pay a tax penalty as follows:.
- 2014: Penalty is the larger amount - $95 or 1% of taxable earnings
- 2015: Penalty is the larger amount - $325 or 2% of taxable earnings
- 2016: Penalty is the larger amount - $695 or 2.5% of taxable earnings
Your clients may qualify for a tax credit through the exchange based on their incomes. People earning between 100% and 400% of the federal poverty level can qualify if they are not eligible for other sources of minimum essential coverage, including government-sponsored programs such as Medicare and Medicaid.
This includes:
- Individuals with modified adjusted gross incomes of $11,490 to $45,960 a year
- Families of four with modified adjusted gross incomes of $23,550 to $ 94,200 a year.
Your clients may qualify for cost-sharing subsidies based on their income. This includes:
- Individuals with modified adjusted gross incomes of $11,490 to $28,725 a year.
- Families of four with modified adjusted gross incomes of $23,500 to $58,875 a year.
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